TRAI recommends review of pricing methodology for FM radio licensing

The Telecom Regulatory Authority of India (TRAI) has recommended a review of the current methodology for determining the reserve price for FM radio auctions so as to remove flaws in the FM radio, which is into its third phase now.

TRAI has suggested early implementation of its recommendations on the minimum channel spacing of 400 KHz for FM radio broadcast issued on 19 April 2012, which, it said, would help increase the number of channels available for auction in each city.

Under Phase-III auction, an additional 839 channels across 294 cities would be made available.

TRAI has suggested a licensing period of 15 years against 10 years under Phase-II licensing.

The cut-off date for migration would be decided by the ministry of broadcasting after completion of the auctions. However, it would not be later than 31 March 2015.

For calculating the migration fee, the cities have been categorised into three groups - X, Y and Z - based on the availability of FM channels in each city.

Group X consists of 17 cities where no channels are available in Phase-III auction. Group Y has 26 cities where channels available for auction are a third or less of the total channels available in that city.

Group Z includes 42 cities where more than a third of the total channels in that city are available for auction.

TRAI has recommended differential pricing for the three groups. For Group X, TRAI has suggested a derived price a derived price based on the percentage increase in the Phase -III auction prices obtained from the percentage increase in the prices obtained in Group Z cities. It recommended that the migration fee in the 17 Group X cities should be higher than in Phase-II average bids by a factor of 1.5 or Phase-II highest bid of the city increased by the average increase in auction prices in Group Z cities (compared to their reserve price) in the same category in Phase-III.

Group Y cities are those where auction will be held, but for a few channels. Since this is deemed to be a scarce market situation, TRAI has suggested that migration fee for existing channel operators should be higher of Phase-II average bid for the Y city multiplied by a factor of 1.5 or Phase-II higher bid of the city increased by the average increase in auction price in Group Z cities (compared with their reserve prices) in the same category in Phase-III, but lower than that and the actual Phase-III auction price obtained in the city.

TRAI said since Group Z cities have sufficient FM frequencies available for auction, the actual auction price obtained in Phase-III will be migration fee.

In all these cases, the residual value of Phase-II permission, calculated on a pro rata basis, is to be deducted from Phase -III migration fee.

However, TRAI said the methodology to be adopted for determining the reserve price for fresh cities in Phase-III should be reconsidered as the current methodology might jeopardise the auction.

The current FM radio licences would start expiring from March 2015.

Industry sources welcomed the overall package, with a leading radio company CEO stating that "after a two and a half year long painful wait, the cash-strapped and loss-making FM radio sector seems to be in line for some supportive policies".