Govt may garner Rs 5,000 cr from Phase 3 of FM auctions: Crisil

With the first leg of the third phase of the FM radio auctions getting a huge response, rating agency Crisil has pegged that the cumulative gains for the public exchequer is likely to be around Rs 5,000 crore.

"We estimate an overall bounty of around Rs 5,000 crore for the government from the phase III auctions.

"These include Rs 1,150 crore from the 97 frequencies under the first batch of phase III auctions, another estimated Rs 1,900-2,000 crore through migration of 266 frequencies to phase III from phase II, and an estimated Rs 2,000-2,300 crore from licence fees," Crisil said in a report.
 

The licence fee payable is estimated as higher of either 2.5% of one-time fee or 4% of gross ad revenue over the next 15 years.

The amount is significantly higher than what the government earned in the first two phases together, which is estimated to be around Rs 1,500-1,700 crore.

A total of 839 frequencies are proposed to be auctioned in batches during phase III.

The first batch of phase III auctions began on July 27, and ended on September 16, with 135 frequencies, of which 97 frequencies were won on a provisional basis.

The remaining frequencies are likely to be auctioned in the second batch, which is yet to be announced.

The agency estimates that five players -- Entertainment Network India from the Times Group, HT Media, Reliance Broadcast Network, Music Broadcast, and Digital Radio, which together own 40% of the existing frequencies -- are the top spenders in the first batch of phase III.

"Nearly 64% of the upfront licence fee of Rs 3,000 crore would be contributed by these five players," Crisil notes.

It expects the radio industry to nearly double its revenues in the next five years to Rs 3,900 crore from Rs 2,000 crore.

The ad volume would get a fillip as phase III rules will help radio cover a proposed 294 cities from 86 at present and reach 85% of the population, it said.

"In addition, the phase III regime offers more flexibility to broadcasters compared with the previous two phases.

Provisions such as a longer licence period, ownership of multiple frequencies in one city and sharing of network infrastructure for multiple frequencies will support profitability and thus returns for new frequencies," the report adds.

With the phase III widening the coverage of radio to more smaller towns, the report notes that the ad volume will be driven by greater usage of radio by local advertisers.

The share of local advertising is expected to rise from the present 35-40%, as well.