When India’s largest radio groups imagined the year 2013, many saw only golden opportunities, like the potential of becoming quasi-national networks operating in almost a hundred cities.

Some predicted they’d be running more than one brand in major markets and networking different formats across large regions of the country.

These opportunities are all on the table in the third phase of private FM licensing which will see commercial radio expand to hundreds of Indian cities and towns for the first time.

But Phase III, which was expected to be rolled out as early as 2010, has been delayed several times.

After the election?

Many industry insiders now expect the government to drag its feet until after next year’s general election. But amid a deep downturn in the Indian economy, the hold-up has impacted the business models of several radio players.

“It is clear that the lost time is an opportunity wasted,” said Jehil Thakkar, Head Media & Entertainment at consultancy firm KPMG.

“Not only are the radio companies frustrated at the delay in the roll-out of Phase III but also several measures, like ownership rules and networking, are still unconfirmed.”

Thakkar says the economics of the radio business won’t improve until the industry can “evolve to a point where it is on par with other countries.”

Reserve fees too high

But other hurdles still need to be overcome. Under Phase III, radio licences will be auctioned to the highest bidder. Another 839 new frequencies are set to be released across nearly 300 cities, in addition to around 250 stations already on air.

“Unfortunately the reserve fee has been kept extremely high and linked to the highest bid received during Phase II,” said Prashant Panday, CEO of Radio Mirchi, a brand that has become synonymous with radio in India.

Panday thinks the plan is “conceptually flawed” as some towns may not receive any bids. Due to the high costs involved, auction winners will have no choice but to opt for music formats that deliver maximum revenues.

“You can forget programming diversity. Only mainstream contemporary music formats will be viable. On the one hand the government floats a paper about restricting cross-media holdings under the pretext of ensuring plurality of content; on the other hand, it imposes high reserve fees which will do the exact opposite.”

Commercial radio in India already receives much criticism because of a lack of differentiation between stations.

Radio City, the first private station in Bangalore 12 years ago and now a 20 city network, also favours a much lower reserve price.

“Players should be allowed to bid according to their business plan forecasts,” said Radio City’s CEO Apurva Purohit. “It should be left to the players to decide how sensibly they will behave. They are intelligent enough to understand their best interests and will definitely bid accordingly.”

The industry has also lobbied for licence terms to be increased. The plan for Phase III will see 15 year licences, but Purohit is pushing for an extension of existing terms too.

Radio lags behind

Publicly, most CEOs insist their business models have not been affected by the delays, but KPMG’s Thakkar says they are frustrated.

“Most projections over the past two years said Phase III was imminent. It is not only the companies organic growth that is on hold but also the expansion of the radio advertising market. The inability to offer a national or regional solution to advertisers is significantly limiting.”

To help fund Phase III, the industry has called for the raising of limits on foreign direct investment (FDI). The latest signs are that the government will permit international players to invest up to 49 percent in radio firms, up from 26 percent at present.

Industry analysts predict a great deal of interest from overseas if the limit is increased.

“International radio chains that are facing growth challenges in western markets will find India a very interesting proposition,” predicts KPMG’s Thakkar, who sees the FDI being a “great growth catalyst for the industry”.

Radio City’s Purohit said: “The bidding requires huge amounts of capital reserves for a serious player. People who have witnessed the growth of the industry and done the maths will surely be keen to invest in the industry once there is some clarity on Phase III.”

Radio City has had its research and feasibility studies in place for some time and has already experimented with networking at its stations in the state of Maharashtra. It is preparing to bid for around 20 more cities, according to media reports.

Aggressive bidding

Reliance Broadcast – owned by billionaire Anil Ambani – is widely expected to continue towards a strategy of nationwide delivery by bidding for scores of  new cities and towns in Phase III. It already owns licences for its BIG FM brand in 45 cities.

The 45-station Sun Group, owners of Red FM, is predicted to follow a similar route, especially if networking rules are relaxed.

Panday from Radio Mirchi, which operates in 33 cities told Asia Radio Today: “We will be aggressive in Phase III, but will always keep profitability in mind. We do not want to be the biggest network in town. We only want to be the biggest by revenues and profits!”

Under Phase III rules, radio players will be prevented from owning more than 15 percent of all frequencies, although some states will be exempted.

Small players vulnerable

Radio Indigo, one of India’s smallest players, could finally get a chance to grow or get quickly swallowed up under Phase III. With just two stations in Bangalore and Goa, Indigo runs an English contemporary music format.

CEO Sanjay Prabhu denied that the delays to Phase III have hurt his business, although the opportunity to grow into India’s other biggest metros would certainly be profitable.

“We have tapped into other verticals to expand our business, some of which will be launched by the end of the year. Indigo is profitable and well funded,” he told Asia Radio Today.

The company, which is backed by Jupiter Capital, will “go wherever there is a sizeable audience for international music” in Phase III.

But the longer the delay, the weaker the appetite for such huge expansion, especially as the economy remains weak and because foreign investment has been leaving Indian shores over the past few weeks.

High licence fees could see smaller players priced out, when they are responsible for the real diversity of choice in commercial radio at present.

The uncertainty of ownership and networking means players cannotaccurately predict the costs involved in taking radio to India’s smaller cities and towns.

When it eventually happens, the expansion will bring private FM stations to hundreds of millions more people. But even when Phase III is complete, commercial radio will still reach slightly less than half of India’s 1.25 billion population.

There is no certainty that the other half will soon be valuable enough to either the Indian government or private radio players to ever warrant Phases IV V and VI.