Is the FM Auction A Success?
Is the FM Auction A Success?FM auction has received its fair share of bouquets and brickbats. The auction was expected to net around INR 550 crore from the first batch but gained around INR 1175 crore which is more than triple the intended target. Along with this, it also collected INR 1880 crore in renewal fees from current broadcasters. Huge collections have been gained from top three metros-Mumbai, New Delhi and Bangalore- equalling 45% from only 4 frequencies. If Hyderabad, Chennai and Ahmedabad and Pune are also counted, the figure rises to over 66%. However, all that glitters is not gold. Around 38 frequencies in the smaller cities mostly, have not been sold. If this trend persists into batch 2, with close to 830 frequencies being auctioned in more than 250 small towns, the FM auction will be a resounding failure. Let us examine both sides of the viewpoint to see for ourselves whether FM auctions are good news for the radio industry and the government.
No, the FM auction is not a success
1. Artificial scarcity behind the high bidding: Industry experts have opined that high bids were placed in Delhi, Mumbai and Bangalore because the government contributed to artificial scarcity through auctioning of fewer channels.
2. Non Serious Bidders Game the System: The auction format was such that non serious bidders were able to raise prices to harm competition without any adverse impact on themselves Moreover, having information about excess demand allowed non serious bidder to join the group while bidding was on. When excess demand fell, such bidders were able to safely exit after having pumped up prices.
3. Too many bidders, too few spectrum: Scarcity has boosted prices artificially because if you try to sell less where there is demand for more, prices will definitely spiral
4. Less Channels: Had there been 5 channels in each metro, bidding would have been fairer. Information and Broadcasting Ministry data shows Delhi, Mumbai and Bangalore would have closed above INR 31.4 crore, 21.6 crore and 52.6 crore. Both the former and the latter had 5 bidders while Mumbai had 6. 5 channels between 5 bidders is a fair number, 4 is not.
5. Price Distortion: the scarcity premium also led to a price distortion. Government could have easily offered 5 channels per metro. Considering that a small city such as Colombo has 25 channels, metros should actually have had 13 to 14 channels.
6. SC Order Disregarded: I&B Ministry has ignored the SC order for airwaves to be public property and put to public welfare
7. Low Earnest Money Deposit: Low earnest money deposit as in around INR 8 crore in Delhi when the final bid was INR 169 crore and the facility to skip some rounds and re-enter bidding enabled non serious bidders to hurt others
8. Problems in Smaller Towns: Auctions failed in smaller town because reserve prices were too high for the auction mode being used. High reserve price caused no bidders in temple town Tirupati where reserve price was 4.5 crore. The same situation repeated itself in other smaller towns
9. National Cap Imposed: The national cap imposed on bidders limited ownership to 52 frequencies on the national scale-this stymied the big broadcasters who were presented from bidding for the non-purchased frequencies on account of the restriction
10. Winner’s Curse: Top metro cities will be pushed to lower headcount, reduce job creation, limit local content and slash marketing destroying the growth of this medium
Yes, the FM auction is a success
1. Good profit: e-Auction of FM radio phase III channels fetched the government INR 1157 crore-this is a healthy profit
2. Transparent model for public resource allocation: The auction also tested a strong and transparent model for public resource allocation
3. Numbers Speak For Themselves: Towards the close of the channel allocations take, around 97 channels in 56 cities became provisional winning channels with cumulative winning price of INRR 1156.9 crore as against reserve price of INR 459.8 crore, as per an I&B Ministry statement.
4. Provisional Winning Price Surpasses Cumulative Reserve Price: The summing of provisional winning prices outperformed the total reserve price of around 97 channels by as much as 151.58%
5. Strong firewalls to prevent manipulation: The bidding process was using a SMRA e-auction model over the internet with strong firewalls to prevent rigging. Chances of result manipulation are extremely low since the auction was managed by a third party through electronic means where everything is recorded
6. Bidders Cannot be Frivolous: All bidders were accorded eligibility points on basis of EM deposited with the government and certain number of EPs associated with it could enable a bidder to enter a city. This means the bidder cannot non seriously bid for cities it is not qualified for
7. Non Serious Bidders Discouraged: By clock round price bidding for numerous channels and making the price a winning price to create a winning channel, commitment is elicited by the bidder for buying the channel. PWB/provisional winning bidders cannot move out of city till removed by another at a higher cost
8. Artificial Price Rise Eliminated: The possibility of any bidder trying to artificially raise prices will increase the risk of remaining stuck with a particular city. This also ensures that bidding is carried out through a fair process where the market determined price of FM radio channels is attained
9. Higher Investment, Higher Returns: The investors had their own value expectations and those buying the licenses at higher price would also get higher returns for it. This will also faster competition and aid listeners to access wider and better quality coverage. This will also allow players to expand their footprint and bring the market to a balance by creating healthy competition with established companies
10. Small Town Channels in Equal Demand: Huge demand was there for channels in small towns such as Guwahati, Shillong, Jodhpur, Bareilly and Varanasi
11. Winner’s Curse Does not Hold: Broadcasters can work on their networking for better returns to investors and stakeholders besides expanding and diversifying. This will generate more jobs as well.
If success or failure is judged by the size of the profits, it could have safely been said that FM auctions were a hit. But with 135 FM channels in 69 cities, only 87 channels in 56 cities were provisional winning channels. Leftover frequencies remained without any bidders. Apart from the high reserve price putting off radio operators from bidding, especially in smaller cities, the lack of commercial of channels in small towns as against metros and Tier II cities contributed to the conundrum. The national cap did not help, especially Tier III and IV cities where operators need to build ecosystems from the base and only established players can hope to succeed. Barring those who could bid from bidding has proved that FM auctions are more of a failure than a success, because the true potential remains untapped.