The first two days of the much-awaited private FM radio auction, which began on 27 July, have been glitch-free, even if a bit slow. Between Monday and Tuesday, eight bidding rounds took place, which radio company executives deem sluggish. That could also be because this is the first time that the government is holding e-auctions for FM radio and everybody is getting used to the process gradually.

But the speed of the auction is hardly a concern. What may be worrying, however, is that the frequencies in small towns are not generating enough interest among the 26 operators who have been given the go-ahead by the government (in the case of Sun TV Network Ltd, it was the court) to participate in the auctions. The caveat here is that it is still early days and the interest may grow. But as things stood at the end of the day on 28 July, a lot of the frequencies up for grabs in a majority of the 69 cities had few takers.

Auction data put out by the ministry of information and broadcasting on its website clearly shows that cities such as Agra, Ajmer, Bikaner, Kochi, Jhansi, Lucknow, Srinagar, Mangaluru, and many more, did not have enough bidders for the frequencies available. For instance, if a city was auctioning three frequencies, there was only one bidder.

On the other hand, cities like Guwahati, Delhi, Chennai, Mumbai, Pune, Ahmedabad and Bengaluru were in great demand.

The action seems to be limited to the top 10-15 towns. In all, 135 frequencies are on the block in phase III of FM radio auctions. This, in fact, is the first batch of frequencies for auction in Phase III. These are the leftovers frequencies from the auctions held in 2006. These frequencies remained unsold then.

The fear is—and, again, it is too early to predict—if the leftover frequencies will remain just that, leftover.

The feeble interest in the smaller cities is understandable, given the high reserve prices that the government has imposed on them. For instance, while a metro like Chennai has a reserve price of 12.3 crore, Chandigarh is priced at 15.6 crore. While Jaipur and Nagpur stand at 6 crore and 5 crore, respectively, Kozhikode has a tag of 7 crore. Such reserve prices were set by the government in its enthusiasm to maximize its revenue. It took the safe route and fixed the reserve price at the highest level of the 2006 auctions. It’s hard to fathom how the maximum bid could become the minimum price for phase III. Predictably, red flags raised by radio operators before the auction were ignored. Business at such reserve prices would not be viable, they said.

The government also ignored the note by the Association of Radio Operators of India (Aroi) that lobbied for a review of another clause—that of barring operators from bidding for more than 15% of the frequencies that were coming up for auction. A 31 January Mint report said the clause would severely crimp the expansion plans of radio companies, particularly those running large networks.

Back-of-the-envelope calculations suggest that the clause would restrict companies from owning more than 52 stations in a market where large operators like the Sun TV Network, Entertainment Network India Ltd (Radio Mirchi) and Reliance Broadcast Network Ltd (Big FM) already own between 36 and 48 stations.

Given the size of their networks, the policy was restrictive, they maintained. Besides, it would lead to a skew towards the metros and mini-metros, while the smaller category C and D towns would get ignored, they said.

And that is exactly what seems to be happening.

Radio companies are rushing to seize the larger cities because that is where the money is—Delhi, Mumbai and Bengaluru are the largest markets by advertising revenue. And there is a demand-supply mismatch here. In these markets, only one or two additional frequencies are available. The government should have released 5-9 additional frequencies in each of the big A+ and A category towns for the auctions, they said.

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

To be sure, there are high hopes from the ongoing auction as it is taking place after a gap of nine years. During this period, every other media segment has seen more supply come in. This auction was suppose to spur growth. Will it?

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.

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