Bonanza for govt from FM auctions

The govt is expected to pocket Rs.3,000 crore from the radio auctions


The e-auction of the FM radio channels has been transparent and, by and large, smooth. Photo: Mint
The e-auction of the FM radio channels has been transparent and, by and large, smooth. Photo: Mint

After the FM radio auctions are completed, hopefully in the next couple of days, it will be the government that will be laughing all the way to the bank with an estimated Rs.3,000 crore in its kitty.

At the end of 18 August, the electronic or e-auction for the FM radio frequencies, which started on 27 July, generated a revenue of Rs.1,134 crore for the government, against an estimated reserve price of Rs.550 crore. This will be upfront revenue that will accrue to the government and which it will get within 15 days of the auction coming to an end.

Besides, the government will make more money in renewal (called migration) fees from the existing 245 FM radio frequencies. The amount will be in its kitty within a month of the auctions ending. The migration fee formula was devised by the Telecom Regulatory Authority of India, and according to radio industry estimates, the total fee will be close to Rs.1,850 crore.

Nobody is grudging the government the money it will make. However, the question is whether or not the government will meet its social objective for the FM auctions, that is, the expansion of radio to smaller cities and making the medium accessible to the common man. Or that of encouraging differentiated programming on air.

On the face of it, the e-auction, in which 26 operators were permitted to participate, has been transparent and, by and large, smooth.

A court order permitted Sun TV Network companies to bid after they were disallowed from participating in the auction by the government. But what may be worrying are the steep bids received for some of the metros, the high reserve prices for smaller towns and, more recently, the news that the government may challenge the 26 July Delhi high court order that allowed Red FM, owned by Sun TV, to participate in the auction. This may jeopardize the auctions even after they get over.

For starters, the companies have no one else but themselves to blame for the steep bids for Delhi, Mumbai and Bengaluru. For the sole frequency in Delhi, the bid went up to Rs.169.17 crore, while Mumbai commanded Rs.122.81 crore each for the two frequencies available. In Bengaluru, again, the single frequency went for Rs.109.25 crore. (In 2006, the highest bid in Delhi was Rs.31.4 crore, while in Mumbai, it stood at Rs.35.2 crore.)

The fear among radio companies is that at these rates, the business may not be viable. After all, the leading stations in Delhi and Mumbai generate yearly advertising revenue of Rs.35-40 crore each. So, even if these two cities are the largest advertising markets (generating Rs.350-400 crore of revenue between them) for radio and may be growing, it will be a long while before the new stations break even. Besides, since competition in metros like Delhi, Mumbai and Bengaluru will be stiff, these new stations may also play popular music to earn revenue rather than offer differentiated programming.

Currently, the radio sector is seeing a compound annual growth rate of 18% and will touch revenue of Rs.3,950 crore in 2019 compared to Rs.1,960 crore in 2015, according to the 2015 media and entertainment industry report by the Federation of Indian Chambers of Commerce and Industry and KPMG.

The unsold cities are also a worry. At the end of 19 August, 13 cities and 41 frequencies remained unsold. Cities that had no takers included Vijayawada, Asansol, Warangal, Mysuru, Puducherry, Siliguri, Tirupati and Mangalore.

There was little interest in these cities as the reserve price for some of them was high. So, these cities remained untouched as the smaller companies could not afford the high rates and the larger companies could not bid for them as they were bound by a clause that imposed a 15% cap on the number of frequencies they could bid for in these auctions.

The 15% cap, as the radio operators had feared, proved limiting, defeating the purpose of expanding radio to small towns.

Probably if all the radio companies were allowed to participate without restrictions, the government would have seen more channels sold and more prices realized, especially in the smaller towns.

According to a PTI report, the government is planning to file a Special Leave Petition in the Supreme Court to challenge the Delhi high court order that allowed Red FM to participate in the FM Phase III auction. While it may be unlikely, just in case Sun TV is disqualified, the rest of the bidders will be left holding costly frequencies considering Sun, which is a large player, must have bid aggressively, pushing the prices up. If auctions are cancelled now, bidders, who have already revealed their cards, may be wary of going through the process again as they already know one another’s plans.

To be sure, a well-meaning government, while pleased with its revenue, would only be partially satisfied with the FM auctions.

The FM radio brand Fever 104 run by HT Media Ltd, publisher of Mint and the Hindustan Times, competes with other radio stations in Delhi, Mumbai, Bengaluru and Kolkata and is also participating in the ongoing e-auction.

Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.