With the Union Cabinet giving the go-ahead for the long-delayed Radio Phase III auctions, we present a quick snap-shot of the process, why players are betting on Phase III and their concerns and issues
Optimism and high expectations rode the sentiments of Indian radio operators who entered the New Year with anticipation that the long-awaited Phase III auctions would take place in the first quarter of 2015. On January 16, the industry had something to cheer about, as the Union Cabinet approved the Phase III auctions in principle and also gave the nod for partial auctions to begin.
Why Phase III Partial Auctions?
The Radio industry has been in a flux for over three years, waiting for Phase III auctions, which will not only help them expand their network operations geographically with newer frequencies, but also provide the necessary impetus for growth. In addition, a major cause of concern was on the migration front, i.e., renewal of existing licences. With existing operating licenses expiring by March 31, 2015, FM players would not be able to operate after this date unless their licences are renewed. To address this issue and kick-start the process, partial auctions will be conducted in a phased manner - thereby allowing the transition of existing operators before the license termination date of March 31.
The government’s official statement on the Phase III partial auctions: “The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its approval for conduct of FM Phase-Ill auctions and migration (renewal) of Private FM Radio licenses from Phase-II to Phase-III in 69 existing cities for 135 channels.” The remaining frequencies, for 839 FM channels across 294 cities, under Phase III will occur at a later date which could be six months or even a year from now.
From a monetary perspective, operators will be in a better position to raise funds for the auctions and plan their strategy, the sooner the partial auctions are held and, consequently, migration fee is decided. As suggested by the Telecom Regulatory Authority of India (TRAI), the auctions will be carried out in an ascending e-auction basis, and it is estimated that Rs 550 crore will be added to the government’s kitty.
With auctions expected to last a few weeks, radio operators say that they have to be held by February beginning, to ensure that operators can migrate before the March 31 deadline. A release of the official ad inviting bids as well as announcement of the auction date is expected soon.
Life After Phase III?
Experts believe that the implementation of Phase III will help penetration of FM match the reach of TV. With FM reaching towns and cities with 1 lakh population, Radio will become more relevant to advertisers, particularly in sectors like FMCG. This in turn will reflect on Radio’s share in the overall advertising pie, with industry leaders believing that Phase III will provide the impetus for the sector to garner a larger chunk of the ad spends. This means that improved FM Radio coverage will drive up listenership and in turn Radio’s share in the overall advertising pie from the current 4-5% to close to 10%. With multiple frequencies also up for grabs, ad inventories will increase while operators will be able to offer varied, differentiated and quality content.
It’s not just national players but even regional players who are looking at Phase III to expand and consolidate their presence in their strongholds. With better understanding of the smaller markets and clientele, larger players could tie up with the smaller local stations and enter the market through them. A big concern for standalone operators is the high costs associated with licenses and renewals, which could make the auctions prohibitive for them.
Phase III policy also allows FM operators to broadcast news, albeit from AIR (All India Radio). However, there is still no clarity on how news from AIR will be aired, if operators have to pay for this. More importantly, the quality of content may not be in sync with the FM players, particularly as most radio operators already have synergies with news networks, courtesy their parent organisations. In addition, broadcast pertaining to the certain categories such as sporting events, traffic, weather, cultural events, festivals, examinations, results, admissions, career counselling, employment opportunities will also be permissible.
What does Phase III bring?
Currently 243 private FM channels operate in 86 cities, spanning 26 States and 3 Union Territories.
839 frequencies across 294 cities will be for grabs in Phase III.
Post Phase III, FM radio will reach 85% of the population and cover most cities with a population of 1 lakh and more
With additional frequencies, content differentiation possible
Increased inventory will lead to increased revenue and better cost efficiencies
Networking will increase operational efficiencies and make smaller stations viable
Longer licence period, from 10 years to 15 years, will help operators absorb initial losses and improve RoI
Phase III Partial Auctions
Approval for conduct of FM Phase-Ill auctions and migration (renewal) of Private FM Radio licenses from Phase-II to Phase-Ill in 69 existing cities for 135 channels
Auctions will be carried out in an ascending e-auction basis, as suggested by TRAI
Approval to migration (renewal) of private FM Radio licenses from Phase-II to Phase-Ill on payment of migration fee according to TRAI recommendations
Rs 550 crore revenue (estimated) will be added to the exchequer
Will help decide market price for new frequencies under Phase III which is linked to the migration fee as per the TRAI formula.
The Process
Auction for 135 frequencies in 69 existing cities which are the leftover frequencies from Phase II
The migration (renewal) fee will get determined based on the auction
Fresh 15-year licenses will be issued to existing broadcasters
Contentious Issues
Under Phase III policy, FM operators will be allowed to air AIR news
Music royalty issue unresolved as copyright board is not in place. While issue with terrestrial radio operators has been partially resolved by the agreement of a license fee with most of the labels, the problem still affects internet radio
DAVP rates – The price model is not linked to listenership but pays radio stations depending on city, i.e., currently old radio stations (before 2007) get disproportionately higher price and new radio stations get unexpectedly lower price
With frequencies in metros expected to be limited and expensive, frequencies in smaller towns could be of more strategic importance to radio operators.
Aggressive bidding expected between the top three networks to retain/gain network dominance, particularly in the metros where there is limited spectrum
Lessons from Phase I and Phase II
All existing operators have experience about going to small and new markets
In towns where listeners are not in the habit of listening to radio, it could take advertisers and listeners 2-3 years to warm up to the medium
Aggressive bidding for limited spectrum, as seen in Phase II, would increase license acquisition costs
