GoM to decide mode of auction for FM-III

A group of ministers (GoM) headed by finance minister Pranab Mukherjee will decide whether a clock auction model should be adopted for the third phase of FM radio rollout in India. So far, FM stations have been awarded through conventional sealed tender auctions. The unexpectedly huge revenues raised from 3G-BWA clock auctions have led to demands from the cabinet secretariat and the department of revenue that the same model be followed for FM radio as well, sources told FE.

Set up under instructions from the Prime Minister?s office, the GoM includes ministers of telecom, information and broadcasting (I&B), home, defence and law. The first meeting of the GoM is expected later this month.

The government plans to auction 806 FM stations across 283 towns and feels that clock auctions will help it generate more revenue than conventional auctions. However, the I&B ministry feels the process could make the FM radio sector financially unviable due to increased licence fees, a view supported by some FM radio companies.

The decision to set up a GoM was taken after the department of revenue and the cabinet secretariat pushed for e-auctions, which helped the government raise Rs 1,06,000 crore from 3G and broadband wireless spectrum, more than thrice the budget estimates of Rs 35,000 crore.

In the clock e-auction method, the government kept raising bids till equilibrium was reached in all 22 telecom circles. This left room for bidders to enter, exit and re-enter, making the auctions a long-drawn process where prices far overshot estimates.

Leading FM broadcasters say clock e-auctions will push up costs and make FM-III financially unviable, because the licence fees for an FM station in a metro may go up two-three times compared to FM-II when the average cost of FM-II licence was around Rs 6 crore. The FM-II auctions held in 2006 earned the government around Rs 1,600 crore from 337 FM stations across 91 towns.

However, in a meeting of the committee of secretaries early July, cabinet secretary KM Chandrasekhar urged the I&B ministry to consider clock auctions for FM-III after its success in 3G/BWA auctions. However, later in the month, the I&B ministry in its cabinet note on FM-III supported tender-based auctions, citing the fundamental difference between telecom and FM radio model. However, I&B ministry later said it can implement clock auctions for FM-III if asked to do so. ?For all practical purpose, until the GoM takes a decision, FM-III cannot move forward,? a source in the I&B ministry said.

Sources said that apart from the auction mode, the GoM will also discuss the financial viability of private FM radio. ?Since the metros and larger towns generate more revenue for radio companies, the GoM may look at adopting clock auctions in A and A+ category towns in the first lot. If successful, clock auctions may then be used in the remaining category of towns,? a source said.

FE was the first to report in July that buoyed by the success of the 3G and wireless broadband auction, the Cabinet secretariat had written to the I&B ministry to adopt the same methodology for allocating licences for the third phase of FM radio. There have even been suggestions from some quarters that coal, natural gas and even liquior licences be allotted through clock auctions.