[cr-india] Court cases slow down FM radio privatisation (fwd)

[Frederick Noronha]

Posting from the DX-India mailing list. Looks like the report in the Times
of India (an interested party in the FM privatisation issue) misses some
issues. 

For reasons which may be understandable considering the big commercial
stakes involved, it also takes a stand broadly supportive of the
government policy ("contrary to popular opinion, the MIP is in fact keen
on rapidly taking forward the FM privatisation process").

The fact remains: the government's policy on privatisation has
significantly flopped. Out of the 140 FM stations promised (even that
number is inadequate for a country the size of India), just below 10
stations have actually started functioning (see the Parliamentary
question, forwarded earlier through this list, dated August 12,2002).

The government policy of arbitrary fixing the number of 'allowed'
no-news only-music radio station per city, and then giving these over to
the 'highest bidder' is fraught with inadequacies. Bids touched phenomenal
prices, as the government looked on with glee. (This looked like revenue
coming in; but most of those who gave in such high bids, realised soon
that the figures were unrealistic and unsustainable.)

Perhaps there's need for a detailed overview of the FM privatisation
policy -- and a comparision of the promises and reality. FN

---------- Forwarded message ----------


Court cases slow down FM radio privatisation
---------------------------------------------
TIMES NEWS NETWORK [ THURSDAY, AUGUST 29, 2002  12:00:33 AM ]

Today nearly 2 years and several court hearings later, the Government is 
unable to take a view on the blocked FM radio frequencies in several cities, 
particularly the Metros. Contrary to popular opinion, the Ministry of I&B is 
in fact keen on rapidly taking forward the FM privatisation process.

However they need to await the final decision of the Delhi High Court on the 
subject of the relief, in terms of earnest money deposits and advance 
reserve licence fees refunds to such of those companies who walked away from 
their obligations to furnish Bank Guarantees.

For a better appreciation of the issue one needs to step back and take a 
quick look at the FM radio scene.

The Ministry of Information & Broadcasting announced the ambitious FM radio 
privatisation plan in the year 2000. This plan envisaged auctioning of 
spectrum (frequencies) in various cities through an open bidding system.
The first phase had more than 100 frequencies (for a 10 year period) on 
offer across 40 cities. Many companies bid large sums of money to obtain 
those licences.

On a total reserve price of Rs 80 crores, the Government received winning 
bids, now widely considered unrealistic and speculative, worth a whopping Rs 
425 crores, which was just the first year licence fee.

The Government had unlocked the value of the frequencies and was looking at 
a goldmine of resources to be released for public good and at the same time 
provide choice to the entertainment-starved masses. The privatisation of the 
airwaves seemed to be truly underway.

However, the trouble started when the Government issued Letters of Intent to 
the winning bidders asking them to furnish Bank Guarantees equal to the 
first year licence fees prior to signing the Licence Agreements. Many 
companies refused to furnish the Bank Guarantees and sign the agreements 
stating that there were perceived differences between the condition in the 
Tender Documents and the Letters of Intent. When the Government stated
that the Earnest Money  Deposits of the defaulting companies would be
forfeited, these companies  approached the Delhi High Court in early
November 2000 for relief.

Licence Agreements were signed after Bank Guarantees were furnished for only 
35 odd frequencies valued at Rs 160 crores. The Government was looking at a 
loss of over Rs 250 crores, but most importantly was faced with the spectre 
of derailment of the privatisation process.

While a final decision of the Court is awaited, in the FM scene, 10 
frequencies are on- air in 6 cities with almost 15 more slated to go on-air 
in Delhi, Calcutta and Chennai by the end of the year.

When contacted, industry sources were emphatic that rapid proliferation of 
FM stations was essential for a sustained development of FM radio as a 
category and medium. Though the Ministry of Information and Broadcasting 
announced the auction of FM licenses in 70 additional cities at the 
beginning of the year, nothing seems to have moved till now. Industry 
sources stated that unless the metros go on-air fast, the industry would be 
hobbled without growth drivers.

In such a situation, it becomes difficult to foresee investors putting in 
money in phase two auctions, when private FM radio has not even started in 
larger cities.

The jury is still out whether the existing FM companies will roll out all 
their FM stations. Adverse cost economics may make it difficult for the 
companies to even pursue a dialogue with potential investors.
Analysts feel that there is a strong need for these court cases to be 
resolved at the earliest.

This is because those who went to court have indirectly blocked frequencies 
and that too, in important metros. Unfortunately, the government can take a 
view on such frequencies only after the court takes a final decision on the 
subject of blocked frequencies.

Posted on the DX-India mailing list by:
Alokesh Gupta
New Delhi, India.

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