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Operators want lower reserve fee as Phase III auction looms

Operators want lower reserve fee as Phase III auction looms

Author | Abhinna Shreshtha | Thursday, Dec 12,2013 8:16 AM

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Operators want lower reserve fee as Phase III auction looms

Last week TRAI invited radio operators to share their views regarding the proposed migration to Phase III of FM broadcasting. Through a consultation paper, which it send out to the radio industry body—AROI (Association of Radio Operators for India) and other industry stakeholders, it invited recommendations on the migration charges, license period, among other issues. With existing Phase II licenses set to start expiring by 2015, radio operators are understandably impatient to get the migration process started. However, the high reserve fee being kept for the Phase III auctions is an issue that they hope the Ministry of Information and Broadcasting (MIB) looks into.

According to Prashant Panday, Executive Director and CEO of ENIL, which operates Radio Mirchi, TRAI was not consulted for Phase III policy, which would have resulted in a far more robust policy. “The MIB asked TRAI if it had any objection with MIB’s plans of ‘ascending e-auctions’ and the ‘reserve fee formula’. Without going through it usual process (industry interaction, etc.), TRAI merely said it had no objection. In effect, TRAI was not consulted,” he said.

The private FM broadcast industry suffered during Phase I and Phase II round of auctions, largely because operators bid too high. This time, operators seem to feel that having learnt a lesson, the bidding will be more sensible. As per the Phase III plans set by MIB, the minimum reserve fee will be the highest bid received for the city or city category (in case of a new city) during the Phase II auctions.

Apurva Purohit, CEO of Radio City opined that a minimum reserve price should be done away with or kept as the average of what players paid in Phase II. “I guess most of the players have been around for more than five years now and they will definitely behave sensibly. They should be allowed to bid according to their business plan forecasts and there should not be any set benchmarks by fixing the minimum reserve price as the highest,” she said.

To get a better idea of what operators might have to shell out if MIB goes ahead with the minimum reserve fee, consider that the highest bid price during FM Phase II for metros like Delhi, Mumbai and Bangalore was around Rs 31 crore, Rs 35 crore and Rs 21 crore respectively.

“The MIB, however, should keep far lower reserve fee for the auctions. Alternatively, if it wants to keep reserve fee this high, the auction method should be up/down from the reserve fee level. MIB cannot be focused on revenue maximisation. If it remains so, then content plurality will suffer enormously, as smaller music and talk formats will become unviable at high fees. Does MIB care for content plurality? When they were arguing about bringing in cross-media restrictions, they used the content plurality argument. Why are they not practising what they preach?,” said Panday.

A related issue is the increase of FDI in radio to 26 per cent in Phase III, up from 20 per cent in Phase II. Though the increase in FDI will definitely be welcome to FM broadcasters as they aim to become more competitive before the Phase III auctions begin, both Panday and Purohit feel the limit should have been increased to 49 per cent to bring it on par with other broadcast media. “The need of the hour is to increase the FDI limit to 49 per cent. From a strategic point of view, 49 per cent is anytime a viable option for partners to invest in the business,” said Purohit.

Meanwhile, with stakeholders expected to submit their opinions to TRAI regarding the migration process by December 17 and counter comments, if any, by December 24, existing operators are seeking more clarity on the migration fee, date of migration and permission period when they move from Phase II to Phase III. TRAI and AROI have suggested that the migration fee be set as highest bid of that city in Phase II minus residual value of the licenses. It remains to be seen if radio operators go ahead with this recommendation.

Nisha Narayanan, COO of Red FM opined that for some of the license holders the residual license fee could be refunded back. When asked about her suggestions to TRAI, she said the ‘specified date’ of migration to the new regulations governing Phase III should be April 1, 2015 as the licences of Phase II start expiring on that date, while the period of permission should be 15 years from the date of migration as is mandated for the new players.

Uday Chawla, General Secretary of AROI welcomed the chance for existing operators to extend their license period, calling it a “good step”. He would not comment about the specific talking points that the radio industry would take up with TRAI and the MIB but said that a meeting of members would happen this week.

The Phase III policy, by opening up towns with population as low as one lakh to FM broadcast and allowing operators to have more than one channel in a city (as long as it is not more than 40 per cent of the total channels run in the city, will allow FM to enter its next stage of expansion. This will also provide an impetus to the growth of advertising on FM while providing new advertising prospects for small town businesses.

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