Friday, January 21, 2011

2G scam to kill the radio medium

Exactly what I was worried about has happened. The Group of Ministers has cleared a policy for auctions for the 3rd phase of radio......auctions will be based on the e-auction model followed for 3G telecom.

I'll tell you why this is type of auction is a ridiculous concept.
1) E-auctions are a step-by-step auction the bid amount keep rising step-by-step and the bidder has to keep bidding till the time it emerges a winner. This is in contrast to the system followed for Phase II which was a one-step auction. Each bidder put in a bid that it thought most appropriate and the bidder either won or lost in a single step. In the new auction method, there is no doubt that the government will make more money. It's because bidders feel tempted by the "incremental nature" of each bid.....they think "its only a little more" and they keep bidding. As a result, the bids go through the roof. Eventually, the winner also loses!
2) E-auctions are OK for "premium" services....such as 3G.....because when the cost of bidding rises, the winner of the bid can pass on the higher prices to the eventual consumer. They are not OK for ordinary public goods.......3G rates are expected to be much much higher than 2G.....this is OK because subscribers of 3G are likely to be a smaller number and they can pay more. It would never be a good method for 2G where the costs have to be kept very low for a wider acceptance of the service. In radio, the eventual consumer of advertising inventory is the advertiser......the advertiser is not going to pay more simply because the cost of bidding went too high. The advertiser will simply shift his spends to TV or print. This will make radio totally unviable. And hence the same thing that happened at the start of privatization of radio in early 2000 is likely to recur - broadcasters shutting down soon after launching.
3) E-auctions favor the bigger broadcasters who have the money to keep bidding higher. Small broadcasters very often "get lucky" in a one-step bidding process, especially if they bid smartly. So good-bye small business!
4) Radio broadcasters will be heavily burdened with license fees yet again. Just for those who are not in the media business: ONLY radio broadcasters pay license fees to the government. TV companies pay a pittance, if at all. Print, Outdoors and internet companies dont pay at all. Radio is only 5% of ad spends.....yet it pays nearly 100% of license fees. What kind of policy is this?

E-auctions would not have been good for 2G auctions also just like I have argued in one of my earlier posts. They are not good for radio as well.

Please understand Kapil Sibal's trashing of the CAG report in this context. The government's priority in the radio space should be to encourage its growth all over the country. It should not be to maximize revenues. There should be 3-4 radio stations in each district.....hence about 3000 odd radio stations across the country. Radio is the cheapest form of entertainment for the aam aadmi. In vast swathes of land which dont have electricity for several hours a day, the radio becomes the only means of entertainment and communication. This government is  committed to the aam aadmi. Why does it not have the guts to do what it stands for? This is the adverse fall out of the 2G scam.

Does the government realize that the opposition will rubbish EVERYTHING it does anyway. It does not matter what the government policy is. So now the opposition will accuse the government of "crony capitalism".....favoring big industry! What will be the government's answer then? That we behaved like the British who only wanted to loot India even while the poor of India suffered at their hands? There is no getting away from this. The government has positioned itself on the aam should have had the courage to do what was right.

Radio will be the first case of collateral damage from the 2G scam. It's entirely possible that  radio broadcasters will again be shoved into the pathetic financial conditions that existed in the past. All the good done during the Phase II policy will be un-done in the future because of this licensing policy.

You wanna know the real truth.....the real truth is that the opposition has behaved irresponsibly. And the government has succumbed to pressure. Good strategies and priorities have been dumped to save the day. The government has become risk averse. It wants badly to portray that it is "fair".....even if what that really means is that it has become exactly the opposite. And no one wants to think of the aam aadmi......not the Congress, not the Left parties, and obviously not the BJP.

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