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Radio rues Govt policy on Phase III, fears large no. of licences going unsold

08-May-2013
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Radio rues Govt policy on Phase III, fears large no. of licences going unsold

After the prolonged delay, the government is now seen taking serious steps such as fast tracking the Phase III e-auction process and approving the recommendations made by EGoM.  In an earlier conversation, Uday Varma, Secretary, Ministry of Information & Broadcasting had shared with exchange4media that they are expecting to issue RFP (Request for Proposal) in a month and have an auctioneer in two months’ time.

While the government has a genuine intent of giving an impetus to the growth of radio, it is not seen creating as much ripples because a number of questions are still unanswered. 

Radio broadcasters unanimously state that while e-auctions are practically at the doorstep, they have still not been able to freeze on expansion strategies owing to concerns such as base price, migration fee, license extension and fear of careless aggressive bidding.

Prashant Panday, Executive Director and CEO, ENIL told exchange4media that they plan to bid aggressively, but smartly; however, a number of pressing issues still hover. “We don’t like the ascending auctions, reserve fee formula and the restriction on news. Because of the reserve fee formula, half the licenses will not be auctioned.”

Phase III auctions will help radio become a mass marketing tool as it offers advertisers an access to some of the smallest cities and towns of the country. However, reserve fee or the base price policy completely beat the purpose as they render a huge number of towns and cities unviable.
According to the current base price policy, a town such as Saharanpur’s base price will be on the basis of the maximum price for Chandigarh, which is a relatively high revenue generating city. 
 
Other important issues holding back the finalising of expansion plans are migration fee (from Phase II to III) and license extension. Nisha Narayanan, COO, Red FM explained that clarity in terms of these issues is very important before freezing the expansion plans. “We are more than happy to bid; however, we have already invested a lot on the existing license and hence we would need clarity on these issues.”

Narayanan pointed out that along with the existing players, there will be a number of new players, especially in the regional game. However, the uncertainty might prevent them from predicting the future capital outlaw, thus reducing the number of bidders.

Also, in the lieu of the slow economic background, both the migration fee and the base price policy need to be looked at urgently. Commenting on the issue, Vineet Singh Hukmani, MD and CEO, Radio One said, “The extension/migration fee should be realistic taking into account slow economic reality. In our view, it should be the average of license fee in a city including the zero value bids prorated to five years. The reserve license fee of the new bids also should begin not at the maximum bid but perhaps at the average bid in that city including the zero value bids. That is the true price discovery and the government has already learnt its lesson from the lukewarm response to the telecom auctions.”

While the e-auction process is extremely transparent, it has scope for some serious bidding issues, especially in metros. The number of frequencies available in metros being very low plus the extremely high base price gives rise to a strong fear of careless aggressive bidding.

“E-auction methodology can result in a situation where a particular player might bid too aggressively. Thus, there is the fear of bidding a lot higher than the anticipated values. Government needs to chalk out norms that should be followed that would prevent aggressive bidding,” said Ashwin Padmanabhan, Business Head, Big FM.

Padmanabhan shared that in 18 – 24 months post Phase III auctions, the radio industry can expect a growth of more than 20 per cent. Post expansion, radio will offer advertisers an option of mass marketing added to the local touch it currently offers, thus functioning as an effective alternative to television advertising. According to the FICCI-KPMG report 2013, the radio industry is projected to grow by 21 per cent CAGR post Phase III expansions. However, the industry shall grow very conservatively for the first few months, as the entire eco-system will take time to settle.

With 839 frequencies on bid, a potential market in every town with a population of one lakh and above, and most importantly, the hope of the e-auctions being rolled out by the end of this financial year, Phase III indeed has a lot to offer. However, the intent of expansion will hold value only once broadcasters have the required clarity to chart their expansion plans.

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