India: Private FM Radio Stations: Government of India’s Policy on Phase II of Expansion of FM Radio Broadcasting Services

In India, All India Radio – the public service broadcaster, had monopoly on Radio Broadcast, till a couple of years back. In May 2000, the Government of India opened the Sector for participation by the private FM broadcasters and offered 108 frequencies in 40 cities for open tender bidding. At present, 21 private FM stations are on the air in 12 cities.

Now The Government of India, Ministry of Information & Broadcasting has formulated a policy on expansion of FM radio broadcasting services through private agencies. This is also known as Phase – II of expansion of FM radio broadcasting.

The salient features of policy for expansion of FM radio broadcasting services through private agencies (Phase – II) are: -

The entities that plan to operate FM Stations in India will have to bid for the license. The permission shall be granted on the basis of One-Time Entry Fees (OTEF) quoted by the bidders (Closed Tender System). The detailed tender notice has not been issued yet, but the same is expected soon.

Only Companies registered in India under the Companies Act, 1956 can bid for license for operating Private FM Channels. However, subsidiary Company of any Applicant Company or Company under the same management shall not be allowed to participate in the tender process for the license. Further Companies associated with or controlled by any religious or political body or advertising agency will also not be allowed to tender for the license.

The existing Private FM Station operators (existing licensees), who exercise their option to be considered for Phase 2, including those licensees who are eligible for automatic migration for channels already operational by them, shall be eligible to be considered for the pre-qualification round for fresh tendering under Phase 2, subject to their fulfilling the prescribed eligibility criteria.

Minimum Net Worth required for one channel per center in all regions:

• D category Centers: Rs. 5,000,000.
• C category Centers: Rs. 10,000,000
• B category Centers: Rs. 20,000,000
• A or A+ category Centers: Rs. 30,000,000
• All Centers: Rs. 100,000,000

Each company may intimate in writing the maximum number of channels in different categories of cities it desires to bid for and its eligibility will be determined accordingly. In case the applicant does not wish to intimate these details, the applicant company should have the minimum net worth of Rs. 100,000,000.

The applicant company shall be required to furnish the following information:

• Names of Directors with evidence of their commercial or managerial competence.
• Directorship or other executive positions held by the Directors in other companies/organizations with details of such companies/organizations with documentary evidence to support their claim
• Names of the key executives, i.e. Chief Executive Officer, and Heads of Finance, Marketing and Creative Departments, if any in position, with evidence of their professional qualifications and managerial competence.
• The applicant company will have to conform to foreign investment and other related stipulations

Total Foreign Investment, including Foreign Direct Investment (FDI) as defined by Reserve Bank of India (RBI), including FDI by OCBs/NRIs/PIOs etc., Portfolio Investments by FIIs (within limits prescribed by RBI) and borrowings, if these carry conversion options, is permitted to the extent of not more than 20% of the paid up equity in the entity holding a permission for a radio channel. Provided however, that in case the Government of India’s policy regarding FII is revised in future, the Applicant shall have to abide to such revised guidelines within a period of six months from the date of such notification, failing which it shall be treated as non-compliant of Grant of Permission Agreement, and liable for punitive action.

The Government of India has reserved the right to announce policy on Cross – Media Ownership. In the eventuality of the Government of India announcing the said policy during the currency of the permission period; the permission holder shall be obliged to conform to the revised guidelines within a period of six months from the date of such notification. As per the policy for phase – II, in the event, the permission holder fails to confirm to the said policy, it would be treated as non-compliant of Grant of Permission Agreement, and the licensee would become liable for punitive action. Provided however, in case the permission holder is not in a position to comply with cross media restrictions for bonafide reasons to the satisfaction of the Ministry of Information & Broadcasting, the Permission Holder would be given an option of furnishing one month’s exit notice and the entry fee for the remaining period, to be calculated on pro rata basis, shall be refunded to the permission holder.

• Separate Financial Bid For Each Channel: Every pre-qualified applicant may apply for allotment of only one channel in each city through a separate financial bid for payment of One-Time Entry Fees (OTEF) for each channel.
• Tender Deposit: Each such financial bid shall be accompanied with a demand draft for an amount equal to 50% of the financial bid and unconditional and irrevocable Performance Bank Guarantee (PBG) for an amount equal to 50% of the financial bid valid for one year from the date of closure of the bidding process.
• Reserve OTEF: Reserve One-Time Entry Fees (OTEF) limit for each city shall be 25% of the highest valid bid in that city. All bids below the reserve limit would be summarily rejected.
• Waiting List: Channels available for Private Agencies in Phase 2 in each city shall be allocated in accordance with descending order of valid financial bids received. In the event of the number of valid bids being more than the available number of frequencies, those unsuccessful valid bidders, who are above the Reserve One-Time Entry Fees (OTEF) limit, and who are willing to continue the deposit of their PBG for the amount equal to 50% of their respective financial bids, will be placed in a waiting list in accordance with the descending order of their financial bids for a period of two years.
• Balance Bid Payment: Every successful bidder shall be asked to deposit the balance 50% of his financial bid through a demand draft within a period of seven days of being declared a successful bidder.
• Blacklisting And Forfeiture: Any successful bidder, who fails to deposit the balance 50% of the bid amount within the prescribed period, shall be immediately disqualified to take part in any fresh bidding anywhere in the country for a period of five years. Further, the original payment made through demand draft for 50% of the bid amount shall be forfeited immediately.
• Letter Of Intent: On deposit of the balance 50% of the bid amount within the stipulated time, and fulfillment of other eligibility conditions, the successful bidder will be issued a Letter of Intent (LOI) to enable the company to obtain frequency allocation, SACFA clearance, achieve financial closure and appoint all key executives, enter into agreements with DD/AIR/BECIL and deposit the requisite amounts towards land/tower lease rent, common transmission infrastructure etc. and comply with requisite conditions of eligibility for signing the "Grant of Permission Agreement" within a period of nine months from the date of issue of LOI.
• In the event of the failure of any LOI holder to comply with the eligibility conditions for the Grant of Permission Agreement or failing to sign the Grant of Permission Agreement within the prescribed period of nine months from the date of issue of LOI, the full deposit of the bid amount shall be forfeited without further notice, and Letter of Intent and the allocation of frequency, if any, shall stand cancelled. The frequency so released may be allotted to the next highest bidder from the waiting list.
• Grant Of Permission Agreement: On complying with all the requisite conditions of eligibility, and furnishing a PBG for an amount equal to the annual fee (10% of Reserve OTEF), the LOI holder and the Ministry of Information & Broadcasting will sign the Grant of Permission Agreement in the prescribed format. Besides the Ministry of Information & Broadcasting would issue a permission after signing the agreement to enable the permission holder to install the radio station, obtain Wireless Operating License (WOL) and operationalise the channel within a period of one year from the date of signing the Grant of Permission Agreement. The period of permission shall be reckoned from the date of operationalisation or one year from the date of signing of the Grant of Permission Agreement, whichever is earlier.

• Annual Fee shall be charged @ 4% of gross revenue, for the year or @ 10% of the Reserve One-Time Entry Fees (OTEF) limit for the concerned city, whichever is higher. Gross Revenue for this purpose would be the gross revenue without deduction of taxes.
• The first year from the date of signing the Grant of Permission Agreement shall be reckoned as the commissioning period. The first year’s fee shall become payable with effect from the date of operationalisation of the channel or expiry of one year from the date of signing the Grant of Permission Agreement, whichever is earlier. The permission holder shall initially pay advance quarterly installments on the basis of the Reserve OTEF formula till the end of the financial year. Once the final fee for the financial year is determined on the basis of gross revenue share formula, the permission holder shall pay the balance in one lump sum within a period of one month from the date of such determination, in any case not later than 30^th September of the following year.
• From the second year onwards, the permission holder shall pay advance license fee on the basis of 4% gross revenue share of the first year or 10% of reserve OTEF, whichever is higher, within the first fortnight of each quarter, and balance due of final annual fee by 30^th September each year.
• Gross revenue shall be calculated on the basis of billing rates, which shall include discounts, if any, given to the advertisers and any commissions paid to the advertising agencies. Barter advertising contracts shall also be included in gross revenues of either licensee on the basis of their respective relevant billing rates.
• Every permission holder shall furnish a bank guarantee for the amount of annual fee calculated on the basis of Reserve OTEF formula, and maintain its validity throughout the currency of the permission. Any default in payment of determined annual fee shall be recovered from the bank guarantee and if the amounts due are more, the permission holder shall be asked to furnish additional bank guarantees to cover the balance.
• Every permission holder shall maintain separate financial accounts for each channel, which shall be audited by chartered accountants. In the case of a permission holder providing or receiving goods and services from other companies that owned or controlled by the owners of the permission holder, all such transactions shall be valued at normal commercial rates and included in the profit and loss account of the permission holder to calculate its gross revenue.
• Government shall have the right to get the accounts of any permission holder audited by CAG or any other professional auditors at their discretion. In case of difference between the financial results determined by the chartered accountant and the government appointed auditors, the views of the government appointed auditor shall prevail to the extent of determining gross revenues of the permission holder.
• Every permission under Phase 2 shall be valid for a period of ten years from the date of operationalisation of the channel. There shall be no provision for its extension and it shall automatically lapse at the end of the period and the permission holder shall have no rights whatsoever to continue to operate the channel after the date of expiry. Government at the appropriate time shall determine procedure for issue of fresh permissions and no concessional treatment shall be afforded to the permission holders in the allotment of channels thereafter.

No entity shall hold permission for more than 15% of all channels allotted in the country. In the event of allotment of more channels than prescribed, the entity will have the discretion to decide which channels it would like to surrender and the government shall refund its OTEF for these channels in full.

Every applicant shall be allowed to run only one channel per city provided the total number of channels allocated to the entity is within the overall ceiling of 15% of all allocated channels in the country. 

A total of 336 channels in 90 cities across the country would be made available for bidding by Indian private companies

No news and current affairs programs are permitted to be aired under the Policy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.