Rescuing FM radio

The information & broadcasting ministry does not appear to have read the story of the golden goose. Its main concern seems to be the maximisation of current revenues, not the health and well-being of the entities which it hopes will lay golden eggs.

A case in point is the FM radio industry, which is sinking under the weight of excessive licence fees. The Telecom Regulatory Authority of India (Trai) has said that the industry cannot survive if licence fees remain at today's unrealistic levels.

It has, therefore, recommended a migration to 4 per cent revenue sharing for existing players and for the second phase of bidding for FM licences in some of the smaller towns and cities.

The ministry has objected to this on two grounds: one, that there will be a sharp drop in revenues; and, two, that it will be impossible to keep track of gross revenues when there could potentially be 300-400 licensees at over 100 FM centres.

Even if a mechanism for monitoring gross revenues is put in place, there could be endless litigation if licensees disagree with the government on what constitutes gross revenue.

For example, if a company outsources advertising sales to an outside party, is its gross revenue the net amount it receives minus commission, or the entire amount paid by the advertiser?

The issues raised are important, but they can wait. The question of assessing whether the government is or is not getting its due will arise only if there is a thriving industry for it to milk in the first place.

Precisely the opposite is true today. In fiscal 2003-04, the government collected over Rs 100 crore in licence fees at a time when the private sector FM radio industry was bleeding to the tune of Rs 120 crore. Faced with red ink, only 21 of the 108 FM frequencies put on bid are operational today. One broadcaster has shut shop, and another two have served notice of closure. The remaining operators are on air only in the hope that there will be a quick, and relatively painless, migration to revenue sharing.

Lessons from the past are very clear. In Europe, the entire telecom industry went into a tailspin when the dotcom-induced euphoria elicited enormous bids for 3G telecom licences in Britain and elsewhere in Europe.

In India, too, telephony succeeded only after the government reversed its high licence fee policy of the 1990s. The entire edifice of our world-class software industry was built on the basis of zero taxation in the initial years.

In this context, it is difficult to understand why FM radio, which is manifestly in trouble, should be subjected to a self-defeating licence fee structure right at the outset.

One can argue whether the revenue share should be 4 per cent or 6 per cent or something entirely different. But when the patient is bleeding and gasping for breath, the best thing to do is shift him to the oxygen tent and leave the arguments for later.

If it is unconvinced about 4 per cent, the government can always put in place a migration agreement that allows for an upward revision when revenues cross a certain threshold. For starters, though, Trai's recommendations are worth an immediate try.