In the third phase, government will issue licences for 680 FM radio stations across 237 cities in the country, mostly very small towns like Achalpur, Bettiah and Churu.
Failure of the third-phase FM rollout will come as a huge setback to the government's initiative of expanding the reach of FM radio. The first two phases witnessed 37 private radio firms investing over Rs 2,500 crore (Rs 25 billion) for over 260 FM stations, of which nearly 200 have become operational.
But experts have cast a doubt on the success of the third phase as nearly 80 per cent of the proposed 680 FM stations fall in very small towns where the FM radio business looks non-viable.
"Nearly 190 of the proposed cities are so small that a FM radio company cannot earn more than Rs 20 lakh per year per city from advertising revenue on an annual expenditure of Rs 50-70 lakh. Unless the government proposes incentives and a more positive regulatory framework, radio companies may choose to stay away from the bidding," an independent FM radio consultant said.
On the regulatory front, radio firms are unable to attract foreign investment due to a 20 per cent FDI cap in the radio sector, as opposed to 26 per cent in newspapers and news channels and 49 per cent in the cable television sector.
Also, according to the current regulations, no radio broadcaster can hold multiple radio licences in a single city. This increases the cost of operations for most radio firms.
Even the Association of Radio Operators for India (AROI), the apex body of all private FM radio broadcasters, has raised concerns over a bulk of the proposed FM stations lying in smaller cities.
"Unless the government clubs all the vacant FM stations in a state and offers them to the serious radio broadcasters, the third phase will not take off," said a senior executive of AROI.
The association has also put forward other suggestions, including allowing only two FM stations per small city (currently three stations per city are proposed), three-year concession period to the licensees on licence fees paid in small cities and fixed music royalty fees.
AROI has also asked the government to divert at least 25 per cent of all its advertising and publicity budget to the FM radio sector to support FM radio and the small radio markets.
Even leading FM radio companies like Radio Mirchi and Radio City have supported AROI's suggestions and have also called for a review of the FDI cap of 20 per cent the sector.Both Radio Mirchi and Radio City have also asked for removal of restriction of one channel per city and ceiling of 15 per cent of all channel allocation in the country to an entity.