TRAI's recos regarding new reserve price unviable: ENIL

On Tuesday the Telecom Regulatory Authority of India (TRAI) came out with recommendations for setting the reserve price (RP) for Phase III auctions of the FM Radio channels in the new cities, which include 253 new cities as well as 11 other cities in J&K and North EastThrowing more light on these recommendations, Prashant Panday, managing director, Entertainment Network India Limited (ENIL) said the industry is very disappointed with the recommendations because none of the points raised by the industry in the consultation paper were accepted by TRAI.According to him most of the TRAI’s new recommendations regarding new RP are not viable and are much higher than earlier levels. He thinks the industry is likely to bid only for 200-300 out of the 800 or so frequencies.ENIL would spent around Rs 500-800 crore to participate in the phase III auctions for both existing and new cities, and Rs 100 crore of capex, adds Panday. The first batch of auctions to be in first half of FY16, says Panday.ENIL operates the Radio Mirchi brand in Mumbai and has a large pan India presence with 32 stations across 14 states.

As per the TRAI recommendations for reserve price for Phase III FM radio valuations would be based on population of the city  and on per capita gross state domestic product. Also valuations would be based on listenership by existing radio operators and on on per capita gross revenue earning by existing operators. The RP in new city to be set at 0.8 times valuation of FM channels in the city.Below is the transcript of P Panday's interview with Reema Tendulkar & Mangalam Maloo on CNBC-TV18.Reema: How does the reserve price look? How are the recommendations? And since there will be a consultation with the various stakeholders, I am presuming Entertainment Network India Limited (ENIL) will be one of them, would there be any changes that you would recommend?A: Actually, these are recommendations that have come after the consultation process. And, I must tell you that the industry is very disappointed with these recommendations and is even more disappointed with the fact that the entire consultation process appears to have been a complete sham. Because, none of the points that the industry had reeled to the Telecom Regulatory Authority of India (TRAI) on the basis of their consultation papers have been accepted. Now, I will tell you what is so weird about these recommendations: the entire process started off because TRAI made an observation that the reserve fees were too high and they would actually jeopardise the auction. Now after six months they have come back and they have made recommendations which actually increase the reserve fees even higher than what they were earlier. So I do not know what TRAI has done this time around.Mangalam: The last time you had met us, you had indicated that the plans for phase three auctions are very aggressive. However the TRAI has also put a 15 percent cap on bids on the spectrum that you can own. So, what do you make of that?A: I do not know how to react to these kind of policy measures the government comes out with. On the one hand we read in every newspaper that the government wants to make it easy to do business. And then on the other hand you find that there are some completely bizarre rules that they have put into place. Now the 15 percent cap was supposed to be there but it was supposed to be there on the totality of the phase three policy, not on a piecemeal-by-piecemeal basis. What they have done is they have put 15 percent cap on the first batch of auctions which basically means that serious bidders like us cannot participate to the full extent and it is completely crazy why they have done this.Reema: So just a few questions and if you could help with numbers. So for the new cities auctions, how much could the government rake in at the reserve price? Do you have the number?A: If you look at the government reserve fees and if you look at the 135 frequencies that they have put up on auction at this point in time, I guess the government would probably make about Rs 600-700 crore.Reema: That is for the existing cities right? 135 frequencies?A: That is right. These are 135 frequencies in the current cities.Reema: What about in the new cities and at the reserve price recommended yesterday?A: My first point is that the new cities, the way TRAI had made the recommendations, most of them are unviable. Reema: So you will not bid for it?A: Out of 800 odd frequencies that are there, I would surprised if more than 200 or 300 odd would really get picked up. So the real fee that the government collects will be much smaller than the potential is.Reema: That is an interesting point. So you think the industry is likely to bid only for 200-300 out of the 800 odd frequencies?A: Let me just give you one example. In the old policy, let us take a city like Ludhiana, the reserve fee was supposed to be about Rs 3 crore - TRAI said that the reserve fees are too high. And now they have come back and said that Ludhiana reserve fee should be Rs 9.9 crore.  Reema: So, very quickly based on all this, how much do you think ENIL will have to cough up in FY16 to participate in the phase three auctions both existing as well as for new cities? Given everything.A: In FY16, the first batch of auctions will happen by end of April, beginning of May and we will have migration fees to pay which we believe will be about Rs 275-300 crore. We also have the opportunity to participate in about 25 and more cities and I guess that should be anywhere in the region of Rs 200-400 crore depending o how the auctions go. And then there will be the second batch, the one that TRAI made a conditions for now which should happen maybe six months to nine months down the line. But, really I think the bid there will be much smaller, like I have already indicated; maybe Rs 50-100 crore at that point of time for ENIL. Reema: So, roughly, would that put you in the ball-park figure of Rs 500-800 crore?A:  Rs 500-800 crore if everything goes in FY16 and then we would add about Rs 100 crore for capital expenditure (capex) and all that. So, that should be ball-park money that we will put in the radio business.