TRAI recommendations for Radio - Event Update - Ray of hope for radio industry :Centrum

Ray of hope for radio industry



We believe TRAI's recommendations for migration of licenses from
Phase-II to Phase-III which is set to expire from March 2015 favours
the industry. Reconsidering the reserve price for fresh cities in
Phase-III, linking migration fees to Phase-II and Phase-III auction
prices depending on the group, extending the license tenure to 15
years and reduction of minimum spacing to 400Khz are all highly
positive. As most radio players are cash strapped and loss marking,
these recommendations offer hope to the industry which has been
waiting for Phase-III auctions for the past 3 years, which could now
happen before March 2015.

$ Reserve price for fresh cities in Phase-III to be reconsidered: We
believe the reserve price for fresh cities in Phase-III auction was
very high and could have led to non-participation by players as in the
case of telecom 2G auctions in November 2012 and March 2013. Case in
point: Reserve price for Shahjahanpur at Rs156mn is similar to that of
Chandigarh, Dhanbad has a reserve price of Rs51mn similar to Patna's
while Malegaon has a reserve price of Rs35mn similar to Nasik's. High
reserve price could have jeopardised the auction, hence reconsidering
the methodology for determining the reserve price is positive as more
players will be able to participate.

$ New formula for calculating migration fees: We believe the new
methodology of calculating migration fee that is linked to Phase-III
and Phase-II auction prices for cities under different groups X, Y, Z
with the license tenure of 15 years is fair. The reason being scarcity
of spectrum in some cities and others not having incremental
frequencies in Phase-III. Case in Point: In Delhi, only one frequency
is available for auction under Phase-3. Hence, any auction under
scarcity conditions is fraught with the risk that the final price
would be lopsided and irrational. However, residual value of the
Phase-II permission, calculated on a pro rata basis, would be deducted
from the Phase-III migration fee with migration happening not later
than 31st March 2015.

$ Implementation of minimum spacing of 400Khz: TRAI has recommended
early implementation of its earlier recommendation on prescribing
minimum channel spacing with a license service area to 400Khz from
800Khz. This will increase the number of FM channels in each city in
the given spectrum band, leading to more stations being available for
auction. As radio is heard mostly on digital devices, mobiles and car
stereos, channel separation can be reduced to 400Khz and encourage
differentiated content as under Phase-III policy, one player is
allowed to buy multiple frequencies in a city.

$ Positive for Radio industry: We believe the recommendations of TRAI
for migration of FM Broadcasters from Phase-II to Phase-III is highly
positive as it could take place before March 2015  after completion of
Phase-III auction. Our calculation suggests ENIL (Hold) will need to
pay a minimum Rs2.7bn as migration fees if all frequencies are sold at
the reserve price or Rs3.6bn if frequencies are sold at 40% premium to
the reserve price. Similarly, Sun TV Network (Buy), DB Corp (Buy) and
HT Media (Buy) will have to pay Rs2.2bn, Rs0.7bn and Rs1bn as
migration fees if all frequencies are sold at the reserve price.



Thanks & Regards

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