Radio Auctions May See Low Participation

If reserve price issues and ownership restrictions are not resolved, there could be a no show

While the first batch of Phase III private FM auctions may have been a thundering success for the government, the second batch could see minimal participation.

Sources close to the Association of Radio Operators for India (AROI) said a petition had been made to the PMO requesting changes in the reserve price calculation, cap on acquisition, and lock-in period for ownership. 

“There are certain issues that need to be addressed. We approached the I&B Ministry with these and unfortunately none of the crucial ones was accepted. We have approached the PMO, but if we don’t get support from there too, the auctions may well be boycotted,” said a source close to the development.

Prashant Panday, MD, Entertainment Network India Limited (ENIL), the company that runs Radio Mirchi, held a more lenient view. “I won’t say there will be a ‘boycott’. It’s just that if the issues regarding the reserve price, restriction on ownership of licences, and lock-in period are not resolved, many players would find it unviable to participate in the auctions. People may put in applications on August 8, but when the actual bidding starts, they just may not bid,” he said.

The AROI had met the I&B Ministry in January to provide recommendations for the upcoming auction. This was followed by a written application in the form of pre-bid queries after the ministry released the notice inviting applications in June. A month later, on July 26, the I&B Ministry released a formal document with answers to queries submitted by the industry, rejecting most of them.

The issue of reserve prices was brought up during and after the auction of the first batch. The frequencies up for auction in Batch 1 were the ones leftover from Phase II and so the reserve prices were decided based on the highest bids in that phase. Since the second batch has 226 cities and 704 frequencies that will be auctioned for the first time, the Telecom Regulatory Authority of India had proposed a formula to calculate the reserve price that will form the base price for an ascending price auction.

In Batch 1, the government raked in Rs 1,157 crore, with the top three frequencies from Delhi, Mumbai, and Bengaluru going for more than Rs 100 crore each. As a result of this formula, the reserve price for cities like Saharanpur, Shahjahanpur, Muzaffarnagar and Dehradun is Rs 15.6 crore (see chart). It is high if one takes into account the advertising rates in these cities.

“The reserve prices have made it difficult to make a justifiable business case,” said the head of a radio station on condition of anonymity.

The AROI also recommended changes in the rule that sets a cap on ownership of licences. The rule says a licence-holder cannot run more than 40 per cent of the total channels in a city subject to three different operators in the city and that no entity shall hold permission for more than 15 per cent of all channels allotted in the country, excluding channels located in J&K, north-eastern states and island territories.

In its request to the ministry and later to the PMO, the association argued while the policy might have been created to prevent monopoly, it was holding industry players back from making investments in technology and content.

“It is recommended that the cap on ownership be removed such that national players and strong regional players can emerge that can consolidate operations, bring economies of scale to the industry, reach the grassroots level and acquire more frequencies,” the AROI stated in its petition.

It added till the caps were revised, for every phase of auctions there should be an overall cap of 15 per cent, irrespective of the number of batches. So if there are 800 frequencies being auctioned in a phase, an operator should be allowed to acquire a maximum of 120 in the phase, no matter the number of batches the frequencies are segregated into.

The association voiced concern over the policy mandate that the holding of the largest Indian shareholder in a radio broadcasting company cannot be reduced below 51 per cent for a period of three years from the date on which all channels allotted to it began operations.

Since radio companies have already served the lock-in period in the previous auctions, a fresh lock-in was deemed unfair.

“It is recommended that the said condition for a three-year lock-in period should be waived for new allotments done in Phase III to existing radio broadcasters as such broadcasters have already served the lock-in period in the earlier phases and the lock-in period should be imposed only once,” the association stated.

Reference - http://www.business-standard.com/article/companies/radio-auctions-may-see-low-participation-116080600112_1.html