Handing over the airwaves

BY ninan| IN Law and Policy | 09/12/2003
The terms recommended by the Task Force for the second round of FM privatization are very generous to big broadcasters, but do very little to encourage non-commercial use of radio.
 

Sevanti Ninan

 

Tendering instead of auctioning, an entry fee and revenue-sharing instead of a stiff  license fee, a licensing period of ten years with qn extension of another five, a loosening up of restrictions on multiple licenses, very token attempts to contain monopolies, permitting of news broadcasts, permission to network, and a considerate silence on the subject of  cross media restrictions.  The private sector guys on the FM task force that had to recommend norms for the second round of privatization have served their sector loyally.

The recommendations are most generous in making investment in radio rather more attractive for private broadcasters than they have been so far. But while handing over frequencies liberally to commercial interests, the government is knocking one more nail into the coffin of the Supreme Court judgement  of  1995  ruling that the airwaves belong to the public. Everybody except the "public" it seems is eligible to corner the lion’s share of frequencies on very considerate terms. 

Remarkably little discussion is taking place in the media on the recommendations of the Radio Broadcast Policy Committee that was supposed to examine issues arising out of the second round of FM privatization. The Ministry of Information and Broadcasting has posted an executive summary on the Net to facilitate a discussion before the government takes a final view on the recommendations. Those who care about a flowering of radio in this country should acquaint themselves with the recommendations and lobby for a radio policy that encourages diversity and facilitates the entry of small players as well.  

Lets look at the highlights of the recommendations:

Licensing process: The Committee recommends that adoption of tender process for radio licenses.  The number of highest bidders that equal the number of frequencies available, would automatically win the frequencies at each center (e.g., if there are seven frequencies available at a center, the seven highest bidders would be allotted the frequencies.)  Rationalisation?  "It is the preferred process, specifically for broadcast licenses. It is one of the prescribed processes in case of auction of spectrum licenses in Australia and is also followed in the United Kingdom. The European Community recommendation on Independent Broadcast Regulator also envisages a tender process for broadcast licenses." 

 Licence fees:The fixed annual license fee (that escalates annually at the rate of 15%) determined by the auction procedure in Phase-I of FM Licenses for Private Broadcasters has proved to be unviable. Migration to a one-time entry fee plus revenue sharing-model, as in the case of cellular licenses is recommended.     Entry fees: The Committee recommends that the entry fees should be determined by a competitive bid process that will reflect the true market value of the frequency. The Committee recommends a revenue share of 4% of gross revenue. This revenue share shall be subject to review by a Committee every five years and may be increased / decreased, depending on the then prevailing market conditions. Such revision, covered under the agreement, will not be considered as a change in law.

 Duration of License:The license would be valid for a period of 10 years from the date of grant of operational license by WPC, as in the case of Phase-I. The Committee also recommends that the renewal of license be permitted, for a further period of five years, subject to satisfactory performance by the licensee and provided that no default has occurred during the license period. This assessment and recommendation for renewal of license will be made by the independent regulator to the Government, once the regulator is in place.

 Multiple Licenses in a City:The number of frequencies that an entity, directly or indirectly, may hold in a particular centre be restricted to 3 or 33% of the total licenses available in the centre, whichever is less. No entity shall hold more than one frequency (license) for news and current affairs in any one centre. Further, such additional licenses should be permitted only if the total number of frequencies available in a centre to establish a broadcast station (including frequencies in Phase-I) is equal to or more than six (6).

 Total Number of Frequencies That An Entity may Hold:    The total number of frequencies that an entity may hold, directly or indirectly, nationally in each phase should no be more than 25% of the total number of frequencies being tendered during the phase. The bidder should at the time of submitting a bid furnish a declaration to the effect that it shall not accept bids for more than 25% of the frequencies in any phase.

 Networking:  In light of the fact that networking can significantly reduce the Capital Expenditure and Operating Expenditure of a broadcast station (especially in small cities), we recommend that networking be permitted. We believe that the market mechanism will ensure that differentiation of content reflecting listener’s choice.  Networking be permitted only amongst the broadcast stations of the same entity and not across the licensees. Furthermore, networking should not be permitted in the same city.

 News and Current Affairs:The restriction on news and current affairs should be lifted and the Committee strongly recommends that the AIR code of Conduct and the applicable industry codes should be strictly followed. The violation of any aspects of these codes would result in the immediate revocation of the license. 

 Foreign Investment:  A simplified foreign investment regime for radio is  recommended, with the following safeguards: FDI up to 26% should be permitted in FM broadcasting (news as well as entertainment). While calculating the 26% limit on FDI, the foreign holding component, if any, in the equity of the Indian shareholder companies of the licensee should be duly factored in on a pro rata basis to determine the total foreign holding in the licensee. The equity held by the largest Indian shareholder group should be at least 51% of the equity excluding equity held by the public sector banks and public financial institutions. 75% of the directors of the licensee, the Chief Executive Officer of the licensee and / or head of the channel and all key executives and editorial staff of the channel must be resident Indians appointed by the licensee without any reference on or from any other company for all news channels. For all entertainment channels exception to the above could be made for ‘People of Indian Origin’ cardholders /  NRIs for the position of key executives and editorial staff.

 Non-Commercial Channels: To promote non commercial programming the committee has proposed that  out of the 4% revenue share that the Government would receive from the FM broadcasters, 1% point of the revenue share should be set apart as a separate fund dedicated for the purpose of developing the non-commercial channels (related to wide range of areas such as culture and heritage of India, public health etc.) The resource which will accumulate in this fund will be sought by private broadcasters to develop non-commercial channels and programmes, in accordance with the directions of a Committee of eminent personalities of the nation formed by the Government.

Such non-commercial channels will be initially required in all A+, A and B category towns, followed by its expansion in other cities in future. It suggested that additional frequencies be released for the above non-commercial channels.

 Niche Channels Through Fiscal Incentives: Help the market process in the direction of development of niche channels. In every city, certain frequencies should be reserved for niche channels to be tendered separately with a low reserve fee and low revenue share percentage. Detailed terms and conditions may be prescribed to ensure that such channels are exclusively developed for niche programming and no partial niche programming be allowed.

 The Committee feels that such niche channels will be initially required in A+, A and B category towns, followed by its expansion in other cities in future. The Committee also strongly urges the Government to consider releasing additional frequencies to encourage such niche channels.

 Foreign Satellite Broadcast: It has been recommended that Government should come out with a policy on uplinking of satellite radio channels and downlinking process, so that the forex outflow could be curtailed and a code of conduct could be enforced.

 In the recommendations above, what are the significant departures from the processes established for Phase I?

 The license fee in Phase I was a  fixed annual fee that escalated annually at the rate of 15%.  What made this unviable was that the government fixed it at a level that proved to be totally unviable. Hence the new recommendation of  migration to a one-time entry fees plus revenue sharing-model.

 The licencing process has also been changed from the open auction bid process followed in case of Phase I of the liberalization of FM broadcasting to the tender process. And the duration of the licenses which in Phase-I of the award of FM broadcast licenses was fixed at ten (10) years with no extensions permissible, has been kept at ten years with a maximum permissible extension of five years.

 Then there is the issue of multiple licences In Phase-I, the licensees were not permitted to own multiple frequencies in the same city. The task force feels that "due to non-viability of market in the Indian context, the restriction on multiple licenses in the same centre needs to be reviewed". It therefore recommends that the number of frequencies that an entity, directly or indirectly, may hold in a particular centre be restricted to 3 or 33% of the total licenses available there, whichever is less. Also,

no entity will be allowed to  hold more than one frequency (license) for news and current affairs in any one centre. The content plan for each separate frequency at the same centre being bid for by the same bidder must be different to ensure wider availability of choices to the listeners.

 Licensees in Phase I were not permitted to Network except on important occasions with the prior permission of the Government. Networking or chain broadcasts means simultaneous transmission of programmes by various broadcast stations(transmitters). This has now been permitted amongst the broadcast stations of the same entity and not across the licensees. Also not be permitted in the same city. 

News and current affairs broadcasting was not permitted to Phase I licensees, nor was foreign direct investment in radio. It has been recommended that both restrictions be lifted. The task force had made a passing nod in the direction of public service programme by suggesting incentives for the development  of niche channels, and a setting aside of  one per cent of revenues accruing to the government from revenue sharing to fund non commercial channels by private broadcasters.

 What are the implications of these changes for the expansion of radio?

 Where the licensing process is concerned, whether it is an auctioning  licensing process or a tendering one, the criteria is still the highest bids. And when the licenses go to the highest bidder, smaller players are kept out. In a tendering process, the winners will be those with more money, not necessarily better content.

 On revenue sharing one will have to wait and see how much revenue the private FM broadcasters declare, four per cent of under-declared revenue is not likely to bring in enough funds to finance non-commercial channels.

 The duration of the licence  suggested has been arrived at by looking selectively at examples of countries which give longer licence periods, rather than those which give licences for five years.  When very few frequencies are being released and one licensee can get it for fifteen years including renewal,  it is good for the licensee, not so good for the listeners whose variety of programming needs may or may not be met.

 Then there is the generosity with regard to multiple licences. If one third of all licences in the bigger cities can be held by one ‘entity’  what about multiple voices emerging in a low cost medium? And what about cross-media ownership? The subject is not touched upon in the executive summary. We are told that restricting the  total number of frequencies that an entity may hold, directly or indirectly, nationally in each phase to 25% of the total number of frequencies being tendered will contain monopolies. But theoretically then four big players can corner all the available frequencies in a country as large as this? Sounds monopolistic enough to me.

 In wanting to permit licensees in the  second phase of expansion to network their radio stations, the task force report says "We believe that the market mechanism will ensure that differentiation of content reflecting listener’s choice." That is breathtakingly naïve. Do we see the market mechanism ensuring differentiation of content in television today?  Did the honorable Members of the Committee listen to the 3 or 4 private commercial channels available in the metros? Seventy five per cent of the respondents in a recent study were unable to distinguish one channel from the other. With networking, as one critique of the recommendations on a community radio mailing list points out, 75% of the people across the country won’t be able to distinguish one city from the other.

As for the incentives being offered to develop non-commercial and niche channels, one only hopes there will be takers. Consider the resources being earmarked, how much of a khazana is one percent of four cent revenue going to be?

Finally, the omissions. There is no mention of setting aside frequencies for community radio, and in fact modulating the entry fee to encourage such channels. Yet commercial broadcasters are to be aided in producing non-commercial channels.

 And if one may nitpick in conclusion, why does the Ministry of Information and Broadcasting which has hosted this report on its website use American spellings?

 

Executive Summary of Recommendations of FM Radio Committee at http://www.mib.nic.in/fm/comm-reco.htm

 

 

 

 

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