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The Lowdown: India’s Phase III FM auctions

The Ministry of Information and Broadcasting (MIB) has come out with a memorandum (pdf) for phase III auctions of 135 FM radio channels in 69 cities in India. The proposed auction process, according to PTI, is expected to add an estimated revenue of over Rs 550 crore to the national exchequer on successful auctions of all proposed channels. We look at some of the guidelines for the auctions:

Pre-qualification process

-The government says that prospective bidders will need to submit an application with a non-refundable processing fee of Rs 25,000 to the information and broadcasting ministry through a demand draft.

-The government will hold a pre-bid conference on 28th January and the final date for submission for applications will be three weeks after the conference. The bidders will also have to submit and Earnest Money Deposit (EMD) along with their application in the form of a bank guarantee. The EMD will be 25% of the reserve price of that city per channel.

-The government will also conduct mock auctions to help bidders familiarize themselves with the rules of the auction. According to the guidelines, the mock auctions shall be conducted approximately six weeks after the pre-bid conference.

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Reserve Price: 

The reserve prices for the 135 channels are provided here:

reserve price

Eligibility criteria for applicants

Companies registered in India under the Companies Act 2013 or the previous Companies Act of 1956 shall be eligible. The memorandum adds also a number of conditions for companies which are not eligible to apply. Some of the disqualification parameters include:

  • A company which is an associate of or controlled by a Trust, Society or Non Profit Organization.
  • A company controlled by or associated with a religious body.
  • A company controlled by or associated with a political body.
  • Any company which is functioning as an advertising agency or is an associate of an advertising agency or is controlled by an advertising agency or person associated with an advertising agency. 

Financial eligibility

The financial eligibility will be assessed on the basis of the following minimum net worth criteria:

net worth
Permission period

The permission granted  shall be valid for a period of fifteen (15) years from the date of operationalisation of the channel. A channel shall be taken as ‘operationalised’ from the date of launch of its commercial transmission, with or without advertisement, on a fixed orregular transmission schedule after the test transmission.

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Restrictions on multiple permissions in a city and other conditions

Every applicant shall be allowed to run not more than 40% of the total channels in a city subject to a minimum of three different operators in the city. No entity shall hold permission for more than 15% of all channels allotted in the country excluding channels located in Jammu and Kashmir, North Eastern States and island territories.

Cross media ownership

-The memorandum adds that if the government policy on cross media ownership is announced within the permission period, the permission holder shall be obliged to conform to the revised guidelines within a period of six months from the date of such notification, failing which it shall be liable for punitive action.

-In case the permission holder is not able to comply with the cross media guidelines for bona fide reasons to the satisfaction of the information and broadcasting ministry, they will given an option of furnishing one month’s exit notice along with a compensation calculated on a pro rata basis of the Non-refundable one-time entry fee (NOTEF) amount for the remaining period of permission held by the company.

Annual fee

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– Permission holder will have to pay the government of India an annual fee charged at 4% of the gross revenue of its FM channel for the financial year or 2.5% of the NOTEF for the concerned city, whichever is higher. For north-eastern states, Jammu and Kashmir and island states, the annual fee is charged at 2% of the gross revenue of the FM channel or 1.25% of the NOTEF of the concerned city.

– Gross revenues includes the gross inflow of cash, receivables, use of the enterprise’s resources by others which yield rent, interest, dividend, royalties, commissions etc. Gross revenue shall be calculated, without deduction of taxes and agency commission, on the basis of billing rates, net of discounts to advertisers. Barter advertising contracts shall also be included in the gross revenues on the basis of relevant billing rates.

– Every permission holder will have to maintain separate financial accounts for each channel, which shall be audited by the Statutory Auditors. At the end of each financial year, the company shall provide the statement of gross revenue forming part of the final accounts of the permission holder as per the format specified , duly certified by the Statutory Auditors and duly supported by the audited accounts for the financial year.

News and current affairs and programme content

The memorandum adds that permission Holder will be permitted to carry the news bulletins of All India Radio in exactly same format (unaltered) on such terms and conditions as may be mutually agreed with Prasar Bharati. The memo adds that the following categories can be considered non-news and therefore can be broadcast:

  •  Information pertaining to sporting events excluding live coverage. However live commentaries of sporting events of local nature may be permissible.
  • Information pertaining to Traffic and Weather;.
  • Information pertaining to and coverage of cultural events, festivals.
  •  Coverage of topics pertaining to examinations, results, admissions, career counseling.
  •  Availability of employment opportunities.
  • Public announcements pertaining to civic amenities like electricity, water supply, natural calamities, health alerts etc. as provided by the local administration.
  • The Permission Holder will have ensure that at least 50% of the programmes broadcast by it are produced in India. Permission holders will also have to broadcast public interest announcements as may be required by the central and state governments. A time slot of one hour per day shall be earmarked for this purpose.

Auction stages

The auction will be done in a two stage process.

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-Channel allocation stage: The first stage is the channel allocation stage which will allocate the number of FM channels in each of the cities to the winning bidders. The auctions will consist of a number of Clock Rounds. These rounds will stop once following two conditions are fulfilled:

(i) For every city the number of bids at the prices set in the last completed Clock Round is less than or equal to the number of channels available.

(ii) There are no opportunities for Bidders to increase their demand allowed by the Activity Rules specified in the memorandum. This will establish a common Winning Price for all channels within a City, and the Winning Bidders for channel in a particular city.

Winning Bidders will pay the sum of the auction determined Winning Prices arrived in this Stage for the cities in which they were assigned a Channel. All Winning Bidders in a city will pay equal Winning Price.

Frequency Allocation Stage: It will follow the Channel Allocation Stage and will allocate specific frequencies to the Winning Bidders in a city. During this stage, the winning bidders will be allowed to only select the FM Frequency for the winning channels amongst the frequencies available in the respective city. Frequency selection preference would be based upon the rank of the bidder in a particular city i.e. Rank 1 bidder in a city will have the first right to choose the frequency followed by Rank 2 Bidder of that city and so on.

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