FM radio is expected to make a great leap outward with the third phase of radio licensing, guidelines for which were announced nearly six months ago. Though it may not happen this fiscal, as earlier promised, the good news is that the I&B Ministry is keen to get it rolling in April.
As many as 800 new licences are up for grabs, which will up the coverage almost four times, from the current 240-odd cities and towns to over 800. Radio buffs will be spoilt for choice with the additional frequencies, but players worry whether it will be too much of a good thing.
The bigger concern is over the format for deciding who gets the new licences. The Government has decided to go in for a transparent online auction, like the 3G spectrum auction.
While existing players and prospective entrants welcome the transparency this provides, they worry whether “over-enthusiastic” bidding might end up pushing up the cost of the licences way beyond realistic levels.
Concerns on pricing
“The e-auction is meant to create transparency. However, we do not want a repeat of 3G auction, where there was tremendous over-bidding, which stretched the balance-sheets of the telecom players,” cautions Mr Vineet Singh Hukmani, Managing Director, Radio One.
Echoing him, Mr Harrish Bhatia, CEO, MY FM says: “The participation and expected revenue generation thereof will depend a lot on the floor price being set by the Ministry of Information and Broadcasting.
Taking the previous phase's highest bid price as a benchmark will deter players from bidding.” Advertising revenues hold the key. “The radio industry is only Rs 1,200 crore, while the mobile phone ringtone industry alone is worth Rs 1,400 crore. So, unlike telecom players, we won't be able to absorb rocketing prices. If something goes wrong with e-auction in radio, we will not be able to survive,” cautions Mr Hukmani.
An informed source, however, told Business Line that “the floor pricing is based on the five-year-old bid, and if the prices don't match the industry expectation, then the Group of Ministers might consider lowering the reserve price.
Expected Revenues
The exchequer, however, does not want to lose out on revenue, in case there are enough takers for the set reserve price.” The government expects to gain as much as Rs 1,700 crore from the auction of 800 new licences. The objective of Phase III is to expand the reach of FM radio from the current 240-250 towns to 800-plus towns, mostly category C and D towns.
The expanded market reach is expected to boost earnings as well.
“Three per cent of total media advertising revenue comes from radio. The auction could mean taking this figure to 7-8 per cent,” says Mr Hukmani.
Ashesh Jani, Partner, Deloitte Haskins and Sells, feels that the lure of the growing industry could mean new players vying for these Phase III licences.
“It is expected that these licences will be for Tier 2 and 3 cities and it is excitement enough for the bidders, as in many cities, they could have the ‘first-mover' advantage,” he says.
“For the first time, private FM players will be shoulder-to-shoulder with the national broadcaster All India Radio (AIR). With expansion of FM radio to 300-plus cities, FM radio will now touch 90 per cent of the Indian population,” says Mr Asheesh Chatterjee, CFO, Reliance Broadcast Network, which owns 92.7 Big FM.
Mr Chatterjee adds: “The availability of multiple frequencies will help radio players diversify their offerings. The hike in FDI from 20 to 26 per cent would attract strategic investor interest into the sector and increased tenure of radio licence from 10-15 years, will allow for improved monetisation.”