By Asmita Dey Auctions for radio frequencies for the third batch of phase III, which have been delayed for the longest time, could flop unless the government tweaks the terms and conditions. Auctions for the second batch were held in October 2016 and drew a lukewarm response. Radio operators say the reserve prices are too high whereas the markets on offer are small which means the costs would be disproportionately higher. Red FM COO Nisha Narayanan told FE that while the licence fee for the newer stations might be smaller, the operating costs would be fairly high, making the operations unviable. Entertainment Network India MD and CEO Prashant Panday pointed out that while bigger players were better placed, the returns on investment for many broadcasters were negligible, a factor that could keep them from expanding. Most of the stations on offer in Phase III have a population of less than five lakh and are located mainly in the North-Eastern states and in Jammu and Kashmir. \u201cThis means the reserve price needs to be very attractive,\u201d My FM business head Rahul Namjoshi said. He is of the view that the high reserve prices kept players away in the second batch of phase III auctions. Big FM, Radio City, Fever FM and My FM did not bid during that round. Jagran Prakashan president Apurva Purohit ruled out any participation by Radio City in smaller cities, given the relatively low revenue potential from advertisements. Purohit believes a revenue-sharing model, without a reserve price, might work better. Big FM CFO Asheesh Chatterjee observed that broadcasters had requested the ministry to relook the manner in which reserve prices are set, especially for the new stations. Moreover, they had asked the government to introduce new frequencies in top cities by reducing the space between channels. "We want the reserve price for the new stations to be kept at the bare minimum. In fact, it\u2019s better to let the market discover the price,\u201d Chatterjee said. The reserve prices in round 2 of phase 3 were benchmarked to the size of the population rather than the advertising potential in the cities. For example, towns like Muzaffarnagar, Shahjahanpur and Saharanpur, commanded a reserve price of `156 crore, much like Chandigarh. While these towns have a population similar to that of Chandigarh, the advertising potential is vastly different, operators pointed out. The top 10 cities in India account for around 60% of the radio industry\u2019s revenues of `2,580 crore in 2016-17 as these markets fetch higher advertising revenues. Clearly, advertising rates in the metros are way higher \u2014 over 10 times the rates in smaller cities. The ad rates in Tier II cities such as Kanpur and Lucknow are as low as `250-660 per 10 second slot compared with `1,150-1,900 in Delhi or Mumbai. Analysts at Crisil pointed out broadcasters in Tier II cities will need to attract more local advertisers who do not buy in bulk.