Big investors may tune into FM radio

Sector set to get Rs 500 cr investments in 12-18 months.

India's private FM radio sector is expected to get foreign investments of Rs 500 crore in the next 12 to 18 months.

According to industry players, now that the sector is open to foreign direct investment and the government has moved from licence fees to a revenue-share regime, the sector has become attractive to investors.

"The decision of the government will see a new set of players entering the business. We think that it will open up great scope for business," said an executive with Radio City.

The government is in the process of awarding the second round of FM radio licences. Bids for 13 cities will be opened tomorrow.

It is expected that FM radio companies will look at expanding into new markets. "We are planning to enter into radio for some time now. We are very excited about it, especially with the option of migrating to phase II without the old fixed licence regime. We see a lot of cross-media synergies by entering the space," says Narayan Rao, director, NDTV, which yesterday bought Red FM as part of its plans to enter the FM sector.

Another benefit for the FM radio companies will stem from the government's decision to move to a revenue-share model. It is expected that the regulatory fee outflow will come down by as much as 50 per cent.

Last year, private FM radio compares paid licence fees amounting to Rs 350 crore, which resulted in losses to the tune of Rs 200 crore. Total revenue earned by FM radio companies was just Rs 110 crore.

In the earlier regime, licence fee was determined by an auction process, which would escalate by 15 per cent every year. For example, the annual licence fee for the Delhi circle in the first year was Rs 7.18 crore, which will go up by 15 per cent this year.

A big change will be the fact that Indian radio stations will have access to a new genre of content as a result of tie-ups with foreign radio companies.

Similarly, companies like HT Media, which has a memorandum of understanding with Richard Branson's Virgin Radio, will enter the FM radio business.

Market sources said Virgin Radio would look at entering India through its investment in HT Media's radio venture.

In may 2000, 108 frequencies in the FM spectrum were auctioned across 40 cities in the country. A multiple-round auction mechanism was followed to give licences for a period of 10 years and the annual licence fee was escalated by 15 per cent per annum on the basis of first-year fees.

But, of the 108 frequencies that were bid for, only 21 are operating now and of these, two have given a closure notice. Only about 25 per cent of the expected licences can become operational, clearly pointing to the fact that the first phase output was not very encouraging and that a new policy framework was required.

In contrast, this time, over 100 companies bid for 300 frequencies that were offered by the government. In addition, about 85 companies were shortlisted by the government to come up with technical and financial bids.