THE government has finally given the go-ahead for migration of current FM radio licences from Phase 2 to Phase 3 in 69 existing cities for 135 channels and auction of FM radio stations under Phase 2. With this, the Phase 3 of FM radio is now activated. This will also help in reducing the cost of operations as players will be able to expand their networks besides being permitted to broadcast All India Radio (AIR) news bulletins. Most importantly, multiple radio stations in cities will provide varied entertainment for the listener.
After a three-year-long frustrating wait, every voice in the radio industry is relieved and ready to celebrate. All this because the Telecom Regulatory Authority of India (Trai), ministry of information and broadcasting (MIB), finance ministry and the Prime Minister’s Office (PMO) applied themselves well to the win-win opportunity this decision presents to the exchequer, the government and, of course, the players who have built this industry despite all the hurdles and heartaches.
However, while the announcement is welcome, the government now needs to follow it up with definite, decisive and quick actions to ensure that the final result is positive for the public exchequer and the players who need to raise funds from banks or investors. Timely fund raising is the biggest challenge now.
The finance ministry will benefit from the R1500 crore coming from migration/renewals of current players and about R 550 crore coming from the partial auction of channels in 68 cities identified by the MIB. Since timing is of crucial importance here, the finance ministry must gear up for three very important but decisive steps that can hasten fund-raising. The exchequer will be the biggest beneficiary of this speed of action within this fiscal.
Allow banks to use the license as collateral (lien) as in the case of telecom. This will certainly allow the approval process to be faster. Most radio businesses now generate cash and are operating at Ebitda (earnings before interest, taxes, depreciation, and amortisation) margins of 25%+; also the licence is now for 15 years against 10 years previously. The “collateralised” licence is the radio company’s most valuable asset.
Considering that R2000 crore has to be raised, raising physical collateral of this value will be next to impossible for small and medium players and perhaps even for the larger ones. This is where the finance ministry and Reserve Bank of India (RBI) have to step in to ensure this is done speedily. The Association of Radio Operators has mentioned this to the MIB and the finance minister as being of prime importance to the FM radio industry.
Allow external commercial borrowing (ECB) in radio. There are many advantages to this. This form of foreign funds are more stable as it is in the form of term loans. So the economy will benefit from this stable inflow without the fear of sudden outflow. Also, Indian banks may be increasing their debt exposure to companies given that telecom auctions are set to happen and increased loans to the corporate sector. The ECB route will help balance this out while reducing the interest burden on the FM radio players who still have a low rate of return on investment. With interest costs lowered, players will be more bullish about bidding for new cities/licences. Again, the finance ministry and RBI need to allow this as it directly benefits the exchequer and that too within this fiscal!
Make the process of migration/ auctions time-bound and smooth. Existing players who have built this industry must be allowed a smooth migration. Almost all players have disputes with government agencies such as BECIL (Broadcasting Engineering Consultants India Ltd) and Prasar Bharati. These must be resolved quickly within February 2015. In case these disputes remain unresolved these should not be used to prevent a player from signing the GOPA (Grant of Permission Agreement) to move into Phase III. How smooth is the transition for the existing players will determine the level of enthusiasm shown by the next set of players. Also with FDI and FII limit in a private FM radio broadcasting company raised from 20% to 26%, if GOPAs are done speedily we will see the inflow of funds actually happening. Trai has already recommended 49% FDI. If the government looks at this closely, there are established global media houses who could be interested in funding indian radio companies.
Radio is the only media industry growing at 18% plus CAGR which entertains consumers across the length and breadth of India. It is the only free-of-cost medium in the country and is all set to grow and provide more employment to thousands of Indians in 250 cities and towns! It
is this very medium that has been used well by political parties to reach their voters.
For now, it seems that the government has heard our ‘Mann ki Baat’. But a smooth and quick fund-raising process and adhering to timelines will ensure that ‘achche din’ are here to stay!
By Vineet Singh Hukmani
The author is managing director and CEO, 94.3 Radio One