The reserve fee for radio frequency is likely to see a marginal hike in the phase III auctions, says Prashant Panday, managing director, Entertainment Network India Limited (ENIL). ENIL operates the Radio Mirchi brand in Mumbai and has a large pan India presence with 32 stations across 14 states.In an interview to CNBC-TV18, Panday says the bidding for the phase III spectrum acution is likely to be very aggressive due to limited frequencies being available.
“Delhi has only one frequency. Mumbai, fortunately has two frequencies on the table, so the metros are expected to see high bidding,” he adds.
Below is the verbatim transcript of Prashant Panday's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: You were talking about a couple of issue. I want to understand, how is this process going to shape out and would we see aggressive bidding from players including you?
A: The first thing is that there will be the auction which will take place now for certain number of frequencies. We have about 135 odd frequencies in 60 odd cities. These are the leftover frequencies of the 2006 auctions. Once that is completed the renewal fees of the currently existing licenses will get determined and then fresh 15 year licenses will be issued to existing broadcasters, so that is the process.
To your question on whether we expect that the bidding can get out of hand, I believe potentially yes it can get out of hand because there is very limited spectrum and it is a very similar situation to what is happening in telecom where the industry has been saying and Telecom Regulatory Authority of India (TRAI) has been saying that you must put all the spectrum in block, but it so appears that only the 2006 leftovers have been put on the block right now.
Ekta: What would your strategy be in these auctions then? Would you be aggressive, bid for whatever the leftover frequencies are despite higher bids coming through or irrational bidding or would you wait for the additional frequencies to possibly come in after six months to a year?
A: We have to take a composite look at the entire thing. Not only are there additional frequencies coming in, in the next six months or maybe a year in the newer cities. However, do not forget there is also 400 kilowatts which is bound to happen, which is basically a doubling or near doubling of frequencies even in the major metro markets and probably that will also happen in the next twelve months. One has to keep that into account as well. The third factor that one has to keep into account is the fact that the digital medium is eventually going to somewhere or the other impact the frequency modulation (FM) broadcasting business maybe it is five-seven years down the line. So, whatever business plans you make have to be made keeping the first five or seven years in mind and not the whole 15 year period of time. Keeping all of those factors is what we will decide on how aggressive we are going to be but at no point in time we are going to bid irrationally.
Anuj: Which cities do you think will see the highest bidding or you are most interested in?
A: The metros will see the highest bidding, the top eight markets because there is very little spectrum available like Delhi for instance, which is the biggest radio market and has only one frequency available Mumbai has two fortunately but Bengaluru has one, Chennai has one. There is going to be a lot of interest in the metros also because they are the biggest components of the radio market. However, there could also potentially be a significant amount in bidding in some select markets like there is Chandigarh, Kochi and handful of other markets which are big even though they are not metros.
Ekta: What is your corpus that you are willing to shell out?
A: On our books it is publicly known that we have Rs 500 crore plus of cash and we are generating more every quarter, but that is only an indication of how much we have available with us it does not mean that we have to put all of it. We have migration to reckon with; we have new auctions to reckon with.
Ekta: Migration is renewal of license?
A: Migration means renewal of licenses and then we have auctions may be six or nine months later or 12 months later. All of that has to be taken into accounts. So Rs 500-550 crore is what we have in our books right now.
Ekta: What you are estimating in terms of a frequency? How much a frequency should cost in Mumbai because you already have a frequency, if you already bid for that. Your renewal license is going to be based on what the auction amount will be as well or the bid amount will be as well, so your cash outflow estimated even for say a commercial city such as Mumbai and Delhi would be how much based on migration plus a possible bidding of new license?
A: One has to remember that when the 2006 auctions happened they were on different method. There was a tendering system so different people different amounts. If one really wants to estimate the real potential of Mumbai then one should probably assume that the 2006 auction had also happened on ascending e-auction methodology and where would that price have settled keeping demand supply equal. If one uses that logic then really the reserve fee that exits today in Mumbai is also fairly high.
Ekta: Which is?
A: Which is Rs 35 crore odd for a license, which is already fairly high. I believe that it will go beyond Rs 35 crore for sure but I do not think that it will be too far beyond that.
Ekta: How much of an opportunity is radio? What are you doing in terms of ad growth right now in terms of radio? You spoke about digital, so overall phase three has been delayed to such an extent that do you think that we have missed the bus in terms of the radio industry opportunity that we could have seen maybe two years ago because now you just switch on your phone and you have global radio, you have it on your computer, you have it on your iPad? We might not need radio as much as we did?
A: That is a very good question and let me take the digital part of it first. Typically what you do when you are in a situation like this, you look at what is happening worldwide. If you look at the US, which has seen very high broadband penetration for at least the last ten-eleven years, you will find that the FM radio continues to grow in the US and clearly it has strengths beyond merely streaming music. It has entered the lives of people in a way that streaming music will probably take another decade or another five-seven years to happen. Radio has the next five-ten years to grow within the country but you are right, all that is available should be put up on the block as soon as possible because five years later the government will realise even lesser than they will realise today.
Ekta: What are the ad revenues that you are currently clocking?
A: The radio industry is approximately 5-5.50 percent of the total ad industry. Its potential is to go 9 percent. Our ad rate for a network is about Rs 10,000 for 10 seconds.
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