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Phase III: How successful are the FM auctions?

Phase III: How successful are the FM auctions?

Author | Abhinn Shreshtha | Wednesday, Aug 19,2015 8:04 AM

Phase III: How successful are the FM auctions?

The first stage of the Phase III FM auctions is in full swing and the government must be rubbing their hands in glee. As of Day 13 the cumulative provisional winning price for all frequencies that had been bid for had reached Rs 1005 crore. This is nearly double of what the MIB had expected before the auctions and the figure will only increase in the coming days.

If the success of failure of the auctions would only be judged on the basis of the money that the government will earn then it has been unarguably a complete success. However, one of the prime reasons for Phase III was to make FM radio available to even the smallest of cities. But if the current trend in the auctions is anything to go by it does not seem to be working quite according to plan.

The auctions currently being carried out, actually include the leftover frequency from the Phase II auctions that were held back in 2006. These include 135 FM channels in 69 existing cities. As of August 12, 2015, when the auctions reached their 13th day, just 87 channels in 56 cities had become provisional winning channels, which means that there were active bids for them. The fear is that the leftover frequencies will continue to remain without takers. This was in fact something that quite a few radio operators had warned against even before the auctions took place.

Phase III auctions may fail, predict FM operators

High reserve prices putting off bidders

One reason why there are no takers for many of the frequencies in the smaller cities is because of the high reserve price imposed by the MIB on them. Radio operators had earlier tried, unsuccessfully, to get the MIB to lower reserve prices. They had a valid point too; considering the amount of time it takes to recoup investments in FM, paying a huge sum in a financially unprofitable market makes little business sense.

Consider some of the reserve prices; a city like Bangalore, which is a Class ‘A’ city according to the MIB’s classification system, has a reserve price of Rs 21.6 crore, while a city like Chandigarh, which falls in Class ‘C’, has a reserve price of Rs 15.6 crore. This disparity is present across regions and many of the cities, with towns like Asansol and Cochin, which have yet to receive a bid, commanding reserve prices of Rs 1.964 crore and Rs 10.11 crore respectively.

15% cap deemed restrictive

Another suggestion made by the industry, to do away with the 15 % cap that doesn’t allow an operator to bid for more than 15 per cent of available frequencies, was also ignored prior to the auctions. Though it might not be an issue for smaller and regional players, the big national level operators like Big FM, Red FM, Radio City and Radio Mirchi have had to strategize their investments. Predictably, this has led to more interest in metros and Tier II cities as they are the most lucrative.

For example, as of August 13, the total provisional winning prices for the 4 frequencies in Mumbai (2), Delhi (1) and Bangalore (1) stood at around Rs 466.65 crore. This is approximately 46.36 per cent of the total cumulative provisional winning price of Rs 1005 crore.

It is clear that there interest is skewed towards the lucrative frequencies. The greater issue facing the government should be that given the amount of investments being made in the first stage, will operators still be willing to participate with the same enthusiasm in the main Phase III auctions, which are expected to open up 264 new cities with 831 frequencies up for grabs. Many of these new frequencies will be in Tier III and Tier IV towns, which have not even be exposed to FM, which means that operators will need to build up the ecosystem from ground up.

It is possible that in eagerness to maximize profits, the government might have shot the ‘grand plan of making FM ubiquitous’ in the foot.

Tags: FM | Radio | Phase III

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