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Report of the Radio Broadcast Policy Committee

Abbreviations

S. No. Abbreviation Full Form
1. AIR All India Radio
2. Consortium Agreement Agreement to use common transmission facilities in Metros as per the terms of the Tender Documents
3. DTH [Direct to Home]
4. E & Y Report Report prepared by Ernst and Young on Radio for Entertainment Networks India Ltd., March 2003.
5. FDI Foreign Direct Investment
6. FICCI-KPMG Report FICCI and KPMG, The Indian Entertainment Sector: In the Spotlight, (2003).
7. FM Frequency Modulation
8. Government Government of India
9. I & B Ministry of Information and Broadcasting
10. ICRIER Working Paper Arpita Mukherjee, India’s Trade Potential in Audio- Visual Services and the GATS (Working Paper no. 81), ICRIER (April, 2002).
11. LOI Letter of Intent for Operating FM Radio Station
12. License Agreement License Agreement for Operating FM Radio Broadcasting Service
13. Ministry Ministry of Information and Broadcasting
14. MW Medium Wave
15. Phase I Issue of FM broadcast licenses in the first phase of privatization of FM broadcasting in India
16. Phase II Proposed issue of FM broadcast licenses in the second phase of privatization of FM broadcasting in India
17. SAFCA Standing Advisory Committee on radio frequency allocation
18. Steering Committee Report of the Steering Committee on Communication and Information for the Tenth Five-Year Plan, May 2002.
19. SW Short Wave
20. Tender Documents Tender Documents for FM Broadcasting Through Private Agencies (no. 212/2/99-B(D))
21. WPC Wireless Planning & Coordination Wing, Ministry of Communications and IT
22. Working Group Report of the Working Group on Information and Broadcasting Sector for Formulation of the Tenth Five-Year Plan, October 2001.

Executive Summary

1. Licensing Process

The Committee is of the view that the open auction bid process was not suitable for auctioning of the frequencies and it did not yield the desired results. Various legal challenges were raised in connection with the open auction bid process followed in case of Phase I of the liberalization of FM broadcasting. The Committee recommends that adoption of tender process for radio licenses is more suitable for the following reasons:

  1. It is a standard and simple process followed by the Government in numerous sectors whereby sufficient experience has been garnered. The process is also judicially well recognised.
  2. It is an internationally well-accepted process[1].
  3. It is the preferred process, specifically for broadcast licenses. It is one of the prescribed processes in case of auction of spectrum licenses in Australia and is also followed in the United Kingdom. The European Community recommendation on Independent Broadcast Regulator also envisages a tender process for broadcast licenses.

The License process shall consist of the following rounds:

  1. The first round should be the prequalification round and only bidders complying with the financial and technical eligibility criteria specified in the tender documents and as certified through a viability/ sensitivity study by an Eligible Financial Institution/Bank should qualify for the next round. The security for participating in this stage should be the earnest money deposit as specified in the tender document. The security amount should be in line with phase I tender document.
  2. After the pre-qualification stage, the financial bids of the qualified applicants should be opened at a notified time and place to determine the Entry Fees.

The bid license amount must be based on the business plan and the security for the same should be in the form of an irrevocable, unconditional and confirmed bank guarantee for the full amount of the quoted license fees. The bank guarantee shall be the security for the period from the date of application till the date of payment in full of the entry fees (i.e. the date of allocation of frequency).

In the tender process the entry fees could naturally be different for each bidder. The number of highest bidders that equal the number of frequencies available, would automatically win the frequencies at each center (e.g. if there are seven frequencies available at a center, the seven highest bidders would be allotted the frequencies).

Immediately upon award of the bid, 25% of the entry fees should be payable and the frequency should be allocated only upon payment of the balance amount of the entry fees.

2. License Fees

The fixed annual license fee (that escalates annually at the rate of 15%) determined by the auction procedure in Phase-I of FM Licenses for Private Broadcasters has proved to be unviable. In such a scenario, migration to a one-time entry fees plus revenue sharing model, as in the case of cellular licenses (Telecom) in India, is the most suitable option.

Entry fees: The Committee recommends that the entry fees should be determined by a competitive bid process that will reflect the true market value of the frequency.

Revenue Share: In light of the fact that:

  • The Tenth Plan has also envisaged a revenue share mechanism in radio.
  • The revenue sharing arrangement has been tried in a number of instances in India (like Telephones/Major ports etc.) and in the media sector as well (in case of DTH).
  • Revenue understatement may be a cause of concern in the case of large public utilities. But radio is comparatively a small local industry with much smaller capital investment and revenue flows. The only form of revenue in the radio industry is in the nature of advertising and opportunities of revenue understatement are therefore much less in comparison to an infrastructure industry like electricity or oil.
  • Detailed guidelines have been formulated in relation to related party transactions in Accounting Standard 18 of the Institute of Chartered Accountants of India.
  • Internationally the revenue share model is used in spectrum allocation (As in Australia) and broadcast licenses.

The Committee recommends a revenue share of 4% of gross revenue.[2] This revenue share shall be subject to review by a committee every five years and may be increased/decreased, depending on the then prevailing market conditions. Such revision, covered under the agreement, will not be considered as a change in law.

3. Duration of License

The duration of the licenses in Phase-I of the award of FM broadcast licenses was fixed at ten (10) years and no extensions were permissible on any grounds whatsoever. Internationally, the initial period of license is lower (e.g. in Canada the period is seven (7) years[3], in U.K it is eight (8) years). However, in most countries, renewal of the licenses is permitted, which taken together with the original license period, would mean that the term of the license extends more than 10 years (e.g. in Canada renewals of license for terms not exceeding seven years (7) is permitted[4] while in U.K licenses are renewable for one term not exceeding eight (8) years, after the completion of the first eight (8) years of license).

The Committee recommends that the license would be valid for a period of 10 years from the date of grant of operational license by WPC, as in the case of Phase-I. The Committee also recommends that the renewal of license be permitted, for a further period of five years, subject to satisfactory performance by the licensee and provided that no default has occurred during the license period. This assessment and recommendation for renewal of license will be made by the independent regulator to the Government, once the regulator is in place.

4. Multiple Licenses in a City

In Phase-I the licensees were not permitted to own multiple frequencies in the same city. The recent trend internationally is towards abolition of such restrictions, as evident in (say) the Canadian Commercial Radio Policy, 1998. Due to non-viability of market in the Indian context, the restriction on multiple licenses in the same center needs to be reviewed, without loosing sight of the potential for monopolies / oligopolies.
Therefore, the Committee recommends that:

  1. The number of frequencies that an entity, directly or indirectly, may hold in a particular center be restricted to 3 or 33% of the total licenses available in the center, whichever is less.
  2. No entity shall hold more than one frequency (license) for news and current affairs in any one center.
  3. Further, such additional licenses should be permitted only if the total number of frequencies available in a center to establish a broadcast station (including frequencies in Phase-I) is equal to or more than six (6).

5. Total Number Of Frequencies That An Entity May Hold : Containing Monopoly

The total number of frequencies that an entity may hold, directly or indirectly, nationally in each phase should not be more than 25% of the total number of frequencies being tendered during the phase.[5]The bidder should at the time of submitting a bid furnish a declaration to the effect that it shall not accept bids for more than 25% of the frequencies offered in any phase.

An undertaking should be said to be in a dominant position, if it holds more than 25% of the total operationalised licenses in the country and in the event of abuse of dominance by such dominant undertakings, the Government or the regulator, as the case may be, should have the power to order the sale of the licenses, through a tender process, to other undertakings that are not connected in any manner whatsoever, with any dominant undertaking. This condition of reserving the right of the Government or the regulator (as the case may be) to break up a monopoly, should be part of the tender documents so as to minimize the chances of litigation.

The content plan for each separate frequency at the same center being bid for, by the same bidder must be different to ensure wider availability of choices to the listeners.

The licensees would neither be permitted to network among the multiple channels in one center, nor would they be allowed to network with another licensee in the same center.

Each license should constitute a separate undertaking and licensees should maintain separate accounts for each frequency allocated to them. It should be the endeavour of each licensee to properly segment the expenditure with reference to each license in accordance with the applicable accounting standards or guidelines issued by Institute of Chartered Accountants of India.

6. Networking

Networking or chain broadcasts means simultaneous transmission of programmes by various broadcast stations (transmitters). Licensees in Phase I were not permitted to Network except on important occasions with the prior permission of the Government.

In light of the fact that networking can significantly reduce the Capital Expenditure and Operating Expenditure of a broadcast station (especially in small cities), we recommend that networking be permitted. We believe that the market mechanism will ensure differentiation of content reflecting listener’s choice.

Please note that Networking be permitted only amongst the broadcast stations of the same entity and not across the licensees. Furthermore, networking should not be permitted in the same city.

7. News and Current Affairs

Phase-I licensees were not permitted to broadcast news and current affairs. The Committee recommends that the restriction on news and current affairs should be lifted and the committee strongly recommends that the AIR Code of Conduct and the applicable industry codes should be strictly followed. The violation of any aspects of these codes would result in the immediate revocation of the license.

8. Co-location

Co-location, in this particular context, is the term used to mean locating the transmitting setups of various broadcasters of a particular city in the same premises and sharing the common tower. This term gathers more significance in the situations of lesser frequency separation between the channels allotted for the same city. The basic idea behind co-location is that the Effective Radiated Power (ERP) of all the channels would be nearly the same and since they are located at the same site, they will be attenuated similarly with the distance thus maintaining the same protection between the channels.
In this context, following observations are made:

  1. Co-location in metro cities was mandatory in Phase-I. The objective was to increase the availability of frequencies by spacing them 400 kHz instead of 800 kHz.
  2. Most of the representations received by the Committee have opposed co-location due to the following reasons:
    1. For co-location purpose, it is necessary for private broadcasters to form a consortium.
    2. It is very difficult to form a consortium of private broadcasters competing with each other.
    3. If a Private broadcaster backs out, his share of cost on common infrastructure would have to be borne by the remaining ones.
    4. Private broadcasters have to bear substantial cost on studio-transmitter link as in co-location case, the studio setup would mostly be at a different location.
    5. There are number of other operational difficulties.

In view of the above difficulties expressed by the private broadcasters, it is recommended that co-location may not be made mandatory in Phase-II.

9. Reserve Entry Fees

In Phase-I the Government divided the centers (cities where frequencies were offered to private bidders) in five categories for the purposes of license fee: A+ (reserved license fee Rs. 125 lacs), A (reserved license fee Rs. 100 lacs), B (reserved license fee Rs. 75 lacs), C (reserved license fee Rs. 50 lacs) and D (reserved license fee Rs. 20 lacs).[6]

In light of the following:

Internationally (e.g. in case of Spectrum Allocation in Australia) the Government is free to determine a reserve price in case of scarce resources like frequencies so that due to imperfections, the market does not grossly undervalue the frequencies. In Phase I also, some licenses were granted to the bidders at the reserve price, as there were no other applicants. Even internationally, instances wherein there is only one bidder for a particular frequency are quite common (please see the note on Canada and Australia, Annexure III).

However, the purpose of such reserve price is again not meant for revenue maximization but only to prevent gross undervaluation. Reserve price must be objectively calculated on pre-published criteria in the light of alternate and probable uses of the frequency. It should necessarily reflect the lowest permissible price.

The Committee recommends that the historical reserve price of Phase I be followed. The Government can consider revising the reserve price in subsequent regimes.

10. Foreign Investment

The Committee is in favour of a simplified foreign investment regime for radio.
We recommend that the following safeguards be introduced in the license agreement:

  1. FDI up to 26% should be permitted in FM broadcasting (news as well as entertainment).
  2. While calculating the 26% limit on FDI, the foreign holding component, if any, in the equity of the Indian shareholder companies of the licensee should be duly factored in on a pro rata basis to determine the total foreign holding in the licensee.[7]The equity held by the largest Indian shareholder group should be at least 51% of the equity excluding equity held by public sector banks and public financial institutions.
  3. 75% of the directors of the licensee, the Chief Executive Officer of the licensee and/or head of the channel and all key executives and editorial staff of the channel must be resident Indians appointed by the licensee without any reference on or from any other company for all news channels. For all entertainment channels exception to the above could be made for ‘People of Indian Origin’ cardholders / NRIs for the position of key executives and editorial staff. This facility will not be available to channels providing any kind of news. It should be obligatory on the part of the licensee to inform the Ministry in writing before effecting any alteration in the foreign share holding pattern or in the shareholding of the largest Indian shareholder and / or in the CEO / Board of Directors. Further, the licensee should be liable to intimate the Ministry the details of any foreigners/ NRIs employed/engaged by it for a period exceeding 60(sixty) days. Further, there should be a bar on direct/ indirect outsourcing of content to foreign parties.
  4. The licensee should be required to make disclosures of any shareholders agreements, loan agreements and such other agreements that are finalized or proposed to be entered into. Subsequent changes to the said agreements should be permitted only with the prior approval of the Ministry. Further, the licensee should not be permitted to raise loans from foreign entities for all news channels beyond the proportion of foreign equity allowed. (In other words, for Licensees putting out news, upto 26% of their total equity can be taken as loans from foreign sources and no more)
  5. In the light of the aforementioned changes to the FDI policy, in respect of FM broadcasting, the existing licensees should be required to effect the necessary amendments to their Memorandum of Association and Articles of Association and relevant agreements no later than two months from the date of migration of their licenses from Phase I to Phase II.

11. Increase in Number of frequencies for Private FM Broadcasts

Committee is of the view that the released frequencies for phase II of liberalization of FM transmission will include unutilized spectrum in phase I after migration.

The spectrum being a scarce resource has to be used rationally, efficiently and optimally by all.

The committee strongly recommends that as the market develops and gathers the required momentum, Government should release additional frequencies in subsequent phases of liberalization, so as to boost further growth of the market.

The Committee is of the opinion that some other available frequencies may be more effectively utilized for the purposes of educational broadcasts by IGNOU. It has been brought to the notice of the Committee that during the last few years AIR is in the process of migrating high quality music programmes like Vividh Bharati from MW to FM. The possibility of availing these MW transmitters from AIR for the purposes of educational broadcasts by IGNOU requires serious consideration. This would address the issue of costs as IGNOU will not have to incur heavy expenditure on building broadcast infrastructure because AIR facilities could be used by IGNOU at a reasonable cost. This arrangement would lead to the best possible use of spectrum and release of additional frequencies.

12. Non-Commercial Channels

The PBS (Public Broadcast Service in the USA) model and the BBC model for non-commercial channels is widely followed abroad, where the programmes are funded by various organisations.

The Committee proposes a similar model wherein, out of the 4% revenue share that the Government would receive from the FM broadcasters, 1% point of the revenue share should be set apart as a separate fund dedicated for the purpose of developing the non-commercial channels (related to a wide range of areas such as culture and heritage of India, public health etc.). The resources which will accumulate in this fund, will be sought by private broadcasters to develop non-commercial channels and programmes, in accordance with the directions of a Committee of eminent personalities of the nation formed by the Government. The funds should be disbursed through transparent rules and regulations framed for this purpose by the esteemed Committee. There would be a yearly audit of the broadcaster and the audit report would be presented to the Committee.

Such non-commercial channels will be initially required in all A+, A and B category towns, followed by its expansion in other cities in the future.

Considering the fact that the number of commercial channels are already limited, it is suggested that additional frequencies be released at the earliest for the above non-commercial channels.

13. Niche Channels Through Fiscal Incentives

The Committee is of the view that it is possible to help the market process in the direction of development of niche channels. In this respect the Committee recommends the following :

In every city, certain frequencies should be reserved for niche channels to be tendered separately with a low reserve fee and low revenue share percentage. Detailed terms and conditions may be prescribed to ensure that such channels are exclusively developed for niche programming and no partial niche programming be allowed.

The Committee feels that such niche channels will be initially required in A+, A and B category towns, followed by its expansion in other cities in future. The Committee also strongly urges the Government to consider releasing additional frequencies to encourage such niche channels.

14. Foreign Satellite Broadcast

Presently, Government of India has a policy on uplinking of TV channels. The following two major benefits have accrued from this policy:

  1. Outflow of foreign exchange has been curtailed since the uplinking is done from the Indian soil instead of foreign countries.
  2. Government is able to enforce a code of conduct for the TV channels.

In the absence of similar policy on the uplinking of Radio channels in the country, valuable foreign exchange outflow is taking place and the Government is unable to enforce any code of conduct on Satellite radio channels.

In view of the above, it is recommended that Government should come out with a policy on uplinking of satellite radio channels and downlinking process, so that the forex outflow could be curtailed and a code of conduct could be enforced.

15. Migration

For the purposes of migration to the new regime, 24th July 2003 (the day of appointment of this Radio Broadcast Policy Committee) shall be taken as the “Cut-off Date” from which the rights and obligations under the new regime will be applicable to the players. Rights accrued and Liabilities incurred till the Cut –off Date shall be governed by the old regime.

The Committee is of the opinion that operationalisation of license or at least a serious attempt at operationalisation should be the criterion for distinguishing between serious licensees and not so serious ones. Therefore, the following should be entitled to migrate to the new regime:

  1. Successful bidders that have operationalised the license and have paid the license fees till date. From the cut off date all fees paid shall be adjusted (but not refunded) against the new system of revenue share.
  2. Successful bidders that operationalised the license but later due to non-viability of business defaulted in payment of license fees.
    1. They will have to pay the original license fees due till the Cut off Date.
    2. Defaults in the original license fee that was to be due, after the cut off date, are to be ignored.
    3. Payment will be treated as one time entry fee.
  3. In case of delay in operationalisation due to co-location, those who are operating under “deemed operationalisation”, should be granted a revised deadline, either to co-locate by say December 31, 2003 or set up independent facilities by say March 31, 2004. On completing either of the above, they shall be entitled to migrate to the Phase II licensing system. Till the point of operationalisation, they will be governed by the old regime.

The Committee strongly recommends that there should not be any blacklisting of bidders for new licenses on the basis of their default in Phase-I, as the Phase-I was characterized by acute market and regulatory imperfections that rendered the market unviable. Also, the Committee appeals to all bidders who have gone to court to withdraw their litigations and take advantage of the new Phase II regime.

16. Import Duty

In this sector, almost all the broadcasting equipments are imported and none of them are manufactured domestically. To make the economics more viable, the Committee suggests that the import duty on the broadcast equipment be brought in line with that of the Telecom sector.

17. Code of Conduct

The Committee suggests that broadcast by private broadcasters must not, inter alia contain the following (as per the AIR code):

  • Criticism of friendly countries.
  • Attack on religion or communities.
  • Anything obscene or defamatory.
  • Incitement to violence or anything against maintenance of law and order.
  • Anything amounting to contempt of court.
  • Aspersions against the integrity of the President, Governors and Judiciary.
  • Attack on political party by name.
  • Hostile criticism of any State or the Centre.
  • Anything showing disrespect to the Constitution or advocating change in the constitution by violent means, but advocating changes in the constitutional way should not be debarred.

AIR code and the advertising code to be looked at as per current scenario and appropriate changes can be made, if required.

18. Shift of IGNOU (Educational Broadcast) to Medium Wave and availing of MW Transmitters from AIR

In Phase-I of liberalization of FM broadcasting one frequency in each of the forty cities was reserved for educational broadcast by IGNOU. However, so far IGNOU has been able to operationalise only 10 FM stations. It appears that due to limits on availability of funds IGNOU may not be in a position to operationalise all these frequencies. On account of paucity of spectrum it is not advisable to allocate FM frequencies for educational broadcasts.

The Committee is of the opinion that some other available frequencies (like medium wave) may be more effectively utilized for the purposes of educational broadcasts by IGNOU. It has been brought to the notice of the Committee that during the last few years AIR is in the process of migrating high quality music programmes like Vividh Bharati from MW to FM. The possibility of availing these MW transmitters from AIR for the purposes of educational broadcasts by IGNOU requires serious consideration. This would address the issue of costs as IGNOU will not have to incur heavy expenditure on building broadcast infrastructure because AIR facilities could be used by IGNOU at a reasonable cost. This arrangement would lead to the best possible use of spectrum.

19. Broadcast Regulator

The radio industry in India is in a nascent stage of growth. However, as the market develops a number of legal and social issues (like content regulation, networking regulation etc.) as well as technological issues (like digital radio broadcasting (terrestrial/satellite) subscription radio channels etc.) are likely to arise in relation to radio. The market competitive forces may not always work in harmony and sometimes may require reconciliation of competing interests. Therefore, as the industry develops it will require maintenance of an appropriate regulatory environment through an autonomous regulator.

The Committee in this respect shares the views and the concerns of the Hon’ble Supreme Court as reflected in the case of Secretary, Ministry of Information and Broadcasting vs. Cricket Association of Bengal,[8] wherein it was observed that the Central Government should establish an independent autonomous public authority representative of all sections and interests in the society to control and regulate the use of airwaves.

The Committee therefore, recommends the constitution of an independent broadcast regulator.

The Committee would like to clarify that the Broadcast Regulator should provide and maintain appropriate regulatory environment to foster market led growth rather than seek to supplant and substitute market forces through regulation. The main objective of the Broadcast Regulator should be to seek proper enforcement of rules and regulations and its actions should primarily be complaint driven.

We suggest to the Ministry of Information & Broadcasting that pending the creation of a Regulator (which is likely to take time, requiring Parliamentary approval), a non-statutory Committee be set up which has Terms of Reference similar to what the Regulator would have. (We understand that the formal creation of SEBI was preceeded by such a Committee).

20. Penalty for Non- Operationalisation of Awarded Licenses

The Committee strongly recommends that after being awarded the license, it is mandatory for Licensee to operationalise the license within a maximum period of one year. If the licensee does not operationalise the license within one year from the date of the award, the Government, as a condition of the license, will forfeit the license and re-tender it in public interest.

A. General:

Radio, as a mass communication medium, boasts of the twin advantages of an enviable wide coverage and cost effectiveness. In India at present, radio coverage is available in SW, MW and FM in analog mode. MW broadcasts cover 98.02% of the Indian population and 88.92% of the geographical area. In sharp contrast, FM broadcasts presently cover only about 30% of the population in India and 21% of the geographical area. AIR, the Public Service Broadcaster, transmits programmes in 24 languages and 146 dialects for domestic listeners. External Services of AIR are broadcast in 15 foreign and 12 Indian languages. AIR presently has a network of 213 broadcasting centers supported by 143 MW, 54 SW and 139 FM transmitters. In addition, there are about 22 privately owned FM radio stations.

B. Radio in the 10th Five Year Plan:

Paragraph 8.4.24 (Thrust areas for Prasar Bharati) of Chapter 8.4 (Information and Broadcasting) of the Sectoral Policies and Programmes of the Tenth Five Year Plan (2002-2007) states as follows:

“In the case of radio, MW transmission has reached 99 per cent of the population. However, FM broadcasting is the preferred mode of radio transmission all over the world due to its high quality stereophonic sound. The emphasis in the Tenth Plan, therefore, needs to be on substantially enhancing FM coverage from the present 30 per cent of the population along with efforts to consolidate the MW transmission network. The following are the major thrust areas:

  • No further expansion of MW transmission except in sparsely populated, hilly terrain and strategic border areas where it will still be more cost effective.
  • Expanding the reach of FM radio to cover 60 per cent of the population by the end of the Tenth Plan. Private operators are to be encouraged to provide FM radio services in metros and small cities.
  • Encouraging private participation in providing quality services and replacing the existing system of bidding for licenses with a revenue sharing mechanism...
  • Automating all FM transmitters and all MW transmitters of 20 kilowatt (KW) and below capacity...
  • Use FM radio to spread literacy because of better transmission and reception. ”

C. Liberalisation in FM Transmission:

Keeping in line with the policy of liberalization and reforms followed by the Government since 1991, the Government during the Ninth Plan period allowed fully owned Indian companies to set up private FM radio stations on a license fee basis. In May 2000, 108 frequencies in the FM spectrum (VHF FM 87-108 MHz) were auctioned pursuant to an open auction bidding process. The decision to open up the frequencies to private participation was taken by the Government with the following objectives:

  1. To open up FM broadcasting for entertainment, education and information dissemination by commercial broadcasters;
  2. To make available quality programmes with a localized flavour in terms of content and relevance; to encourage new talent and generate employment opportunities directly and indirectly; and
  3. To supplement the services of AIR and promote rapid expansion of the broadcast network in the country for the benefit of the Indian populace.[9]

Part - II
Licenses For Phase I
Chapter II
The Tender Document And Agreements of Phase I
Of Private FM Broadcasting

A. Introduction:

The Government divided the centers (i.e. the cities where FM frequencies were offered to private bidders) into three groups (for the purposes of processing of applications). Each of the three groups comprised of five categories on the basis of the amount of the license fee payable for the license being offered to the private bidders. The five categories were as follows: A+ (reserved license fee - Rs. 125 lacs), A (reserved license fee - Rs. 100 lacs), B (reserved license fee - Rs. 75 lacs), C (reserved license fee - Rs. 50 lacs) and D (reserved license fee - Rs. 20 lacs).[10]

Companies registered under the Companies Act, 1956 were eligible to apply for only one license per center. All the shareholding in the bidder company was required to be held by Indians except for limited portfolio investment by FIIs/ NRIs/ Persons of Indian Origin/ OCBs subject to ceilings prescribed by the Ministry of Finance. Political/ religious bodies, advertising agencies, companies incorporated outside India and a company controlled by an insolvent (actual or potential) or a person convicted of an offence involving moral turpitude were not eligible to apply for licenses. Interconnected-undertakings, companies under the same management and control or parent-subsidiaries were also prohibited from bidding at the same center.[11]

B. The Process:

The stepwise process for bidding for and operationalisation of licenses as envisaged under the Tender Documents read with the License Agreement and the LOI was as follows:

  1. Applicants were required to submit an application form along with prescribed earnest money deposit (“EMD”), which ranged from Rs. 2,00,000 to Rs. 50,000. The EMD was liable to be forfeited in case the applicant did not abide by its offer;[12]
  2. The applications of the bidders were then scrutinized by the Government in order to determine the applicants to be invited to participate in the auction for the licenses;
  3. Applicants found to be eligible to participate in the auction were then required to furnish 50% of the reserve license fee for the first year prescribed for the center in the form of a demand draft payable at New Delhi;[13]
  4. If the number of applicants found eligible after scrutiny was equal to or less than the number of channels that were available at a center, all the eligible applicants would be entitled to receive an LOI;
  5. For centers where the number of eligible applicants exceeded the number of channel that were available at that center, allocation of licenses was done by means of an open auction process where the reserve price was progressively enhanced by 10% at each stage till the number of bidders and frequencies offered were equal. Unsuccessful participants in the auction were returned their respective EMD and the reserve license fee;[14]
  6. A LOI was then granted to each of the successful applicants;
  7. BG was to be furnished by each successful bidder within 15 days from the date of receipt of the LOI;[15]
  8. In case of metros the applicants were required to form a consortium before the execution of the License Agreement;[16]
  9. Within three months of the date of issue of the LOI the licensee was to apply to WPC for frequency allocation and SACFA clearance;[17]
  10. The balance fifty per cent. of the license fee for the first year was to be paid by the licensee within 10 days of intimation by WPC that operational license was ready to be issued. Failure to do so would result in forfeiture of the amount already deposited;[18]
  11. License period was to commence from the date of issue of the operational license by WPC;
  12. The successful applicant was to complete the installation of broadcast facilities (including installation of studios, transmitter infrastructure etc.) and commission the service within 12 months from the date of frequency earmarking by WPC;[19]
  13. The license fees for each year were required to be paid in advance within seven days of the beginning of the year;
  14. The license fee for the second year onwards was to increase by 15% at a compounded rate.[20]

C. Other Conditions:

  1. The licenses offered to the applicants were non-exclusive[21], non-transferable and for free to air broadcasts (excluding news and current affairs). However, with the prior permission of the Government it was possible to contract out the setting up of infrastructure facilities like transmitters and transmission towers. The Ministry had further clarified in certain cases that it may also consider entering into a tripartite agreement among lenders, the Ministry and a licensee to encourage financing of the project as in case of the telecommunication sector[22].
  2. The licenses were to be valid for a period of 10 years commencing from the date of grant of the operational license by WPC.
  3. Certain obligations in respect of content regulation were expressly laid down in the license agreement. Further, the licensees are required to adhere to the programme and advertising code of AIR.
  4. 50% of the programmes broadcast[23]by the licensee was required to be produced in India.
  5. The licensee was required to own the transmitter.[24]
  6. The Government reserved the right to cancel/ modify/ amend the license agreement in public interest or for security reasons.

D. Financial and Managerial Competence[25]:

  1. Applicants were required to produce necessary evidence of capital adequacy for funding investment of Rs. three crores and working capital of Rs. two crores per channel;
  2. Credit worthiness of the applicant company was to be certified by any scheduled bank/RBI approved financial institution;
  3. In case of new companies credit worthiness of promoters/directors of the company was to be certified by any scheduled bank/RBI approved financial institution;
  4. Applicants were required to submit annual reports and accounts for the past three years (1996-1999);
  5. Applicants were required to submit list and details of projects carried out by the applicant company (directors or promoters in case of a new company) during the last three years;
  6. Applicants were required to disclose the management positions held by their Directors in other companies/organizations along with details of these companies and organizations;
  7. Applicants were required to disclose past management experience of the Directors of the company;
  8. Applicants were required to submit detailed compliance reports on an [annual] basis with any deviations from the terms and conditions of the License Agreement highlighted;

E. Bank Guarantee:[26]

Successful applicants were required to furnish a BG valid for the term of the license and for an amount equivalent to the license fees for the first year. As per its terms, the BG could be invoked in the following cases:

  1. If the licensee failed to deposit the license fee within 7 days of the beginning of each year;
  2. If the licensee stopped the service without giving one year’s notice; or
  3. If the licensee was declared or applied for being declared insolvent or bankrupt.

F. Consortium Agreement:
  1. The provision of common facilities for FM transmitter complex such as land, building, tower etc. was required to be through a common agency approved by the Ministry.
  2. Each licensee was to submit the Consortium Agreement along with the BG at the time of signing the License Agreement.
  3. A consortium member before exit was required to give 30 days notice to the other parties. The dues had to be settled by the member exiting the consortium and a no-dues certificate was required to be obtained from the common agency before such exit.

Chapter III
Results Of The First Phase Of Liberalisation

A. Assessment of the Liberalisation process:

The Government received 101 bids for an aggregate consideration of Rs 425 crores as against the estimated bid consideration of Rs. 79.65 crores. However, the actual collection was only of Rs. 158.8 crores from bids for 37 frequencies as bidders in respect of 64 frequencies defaulted.

About 22 licenses are currently operational and two licensees are paying license fees though they have not operationalised the license. The Government has accepted such payments by describing the licenses as deemed operationalised. The deadline for operationalising the licenses was one year from signing the License Agreements, i.e. December 29, 2001. However, even after furnishing the bank guarantees and signing the License Agreement, some successful bidders did not operationalise their licenses within the required time frame and ultimately surrendered their licenses.

There were variations in the License Agreement from the terms of the Tender Documents and the LOI issued. The successful bidders sought clarification which delayed the implementation of the License Agreement and necessitated negotiations between the successful bidders and the Ministry.

B. Important Clarification and Changes Sought:

The successful bidders sought the following clarifications and changes in the Tender Documents and License Agreement:

  1. Right of hearing before termination of license.
  2. Compensation in case of takeover of assets by the Government under the provisions of the License Agreement.
  3. Location of transmitter outside municipal limits. This was agreed to by the Ministry as long as it provided coverage to the region specified.
  4. It was submitted that the installation period should be reviewed and revised to 12 months from SACFA clearance as opposed to WPC clearance as no work could commence without the SACFA clearance. The Ministry observed that they were not very particular about the time period and minor deviations and extension could be permitted on a case to case basis.
  5. The License Agreement mandated that the transmitter and programme links be owned by the broadcaster. As this was not initially in the Tender Documents the Government agreed to delete reference to programme links.
  6. It was submitted that the consortium agreement contained no clause on dispute resolution or joining of new parties/on the method of payment. The successful bidders requested that the License Agreement be executed prior to execution of the Consortium Agreement. The Ministry pointed out that Clause 6 of the Consortium Agreement clearly covered dispute resolution and the new parties can join on the same terms and agreements as the existing members.
  7. It was submitted that in the Consortium Agreement the notice period to other parties in case of exit of a party, on account of surrender of license, should be 180 days instead of the prescribed 30 days as the exiting party was required to give notice of 1 year to the Government under the terms of the License Agreement. The Ministry opined that it is a matter of agreement among the members of the consortium.

Some of the issues were clarified by the Ministry and a draft of the License Agreement as acceptable to the Ministry was finalized on 12/10/2000. However, some of the bidders did not accept that License Agreement and when action was sought to be initiated by the Ministry, litigation ensued.

C. Litigation:

Some[27] of the successful bidders resisted action on the part of Government. Litigation ensued, inter alia, on the following grounds:

  • As variations in the License Agreement [and the LOI] from the terms of the Tender Documents constituted a counter offer the forfeiture of EMD and the reserve license fee upon failure to submit the BG, to enter into the License Agreement, or, to operationalize the license, was unjustified. The variations, inter alia, included the following:
    1. In case of failure to furnish the BG/ execute the License Agreement during the stipulated time period the reserve licensee fee deposited by the bidders at the time of participation in the auction process shall be forfeited.
    2. In the event of revocation of the LOI the successful bidders shall not be eligible to apply directly or indirectly for any FM radio license in future.
    3. Localised content obligation in Clause 13 of the License Agreement was not originally provided for under the Tender Documents.
    4. The license was made non –transferable while the Tender Documents had only laid down partial prohibitions on transfer.
  • The BG was a conditional bank guarantee that could be encashed only if the conditions precedent were fulfilled and most cases of default were not covered in terms of such conditions.
  • The [Tender Documents] envisaged forfeiture of the reserve license fees: (a) only in the event the successful bidder failed to deposit the balance of the licensee fee for the first year within 10 days of issue of the operational license or defaulted in payment of license fee for subsequent years and (b) in case the licensee failed to install broadcast facilities and commission services within 12 months of frequency earmarking by WPC. Additional conditions not stipulated in the Tender Documents were introduced into the LOI.
  • The bids submitted by the bidders on the basis of the original Tender Documents were valid only for a period of 180 days and lapsed due to non-acceptance by the bidders of the revised terms and conditions of the license.

Chapter IV
Lessons From The First Phase Of Liberalisation

The results of the first phase of liberalization of FM radio broadcasting in India are not very encouraging. The private players in the FM industry have reported heavy losses that are likely to continue for some time. The private radio stations would take a long time to break-even as the industry is characterized by a long gestation period. The following issues have arisen in the first phase of liberalization:

A. Market Failure:

Due to the absence of stiff penalty clauses for withdrawal and the very nature of the open bidding auction process itself the bidders indulged in speculative bidding. The kind of auction process that was followed has been found to be not suitable for the award of FM licenses to private bidders. The euphoric projections that drove bidding were unjustified as the assessment of the market and the projected revenues by the bidders were wide off the mark. In this respect, the bidders did not submit proper documentation and did not carefully study the market. Therefore, the first year license fee, arrived at through the bidding process, was in several cases entirely unrealistic. As a result several of the licensees defaulted and are even today making huge losses.[28] The license fee for the first year for the ten licensees amounted to about Rs. 162 crores, 60% more than the annual revenues of AIR.[29] This unrealistic license fee was required to be further escalated at the compounded rate of 15% per year which renders the project completely unviable, a fact recognized even by the Working Group. Due to the unrealistic license fees for the first year the BG amount (50% of the first year license fee) also was unrealistic. In such a scenario absence of proper forfeiture and other penal clauses in the License Agreement provided the industry players an easy exit route.

B. Tender Documents, LOI and License Agreement:

As has already been stated earlier, the clauses on forfeiture and encashment of the BG in the [Tender Documents and/or License Agreement] were not satisfactory. Further, the terms of the LOI, the License Agreement and the Tender Documents were inconsistent on several issues. The LOI introduced additional conditions of: (a) forfeiture of 50% of the license fee deposited by the parties in case the License Agreement was not executed or the BG not submitted and (b) black listing of defaulters. Much of the litigation and dispute resolution through arbitration is on account of the lack of clarity in the Tender documents and the post tender communications. Further, in certain cases the Government permitted the licensees to pay the license fees pending operationalisation of the license by recognising “deemed operationalisation”, which in effect amounted to an extension of the operationalisation period, a concept alien to the License Agreement and the Tender Documents.

C. Other Issues:

  1. Restriction on News and Current Affairs: News and current affairs coverage was not permitted on private FM channels. The reasons for such a restriction have been explained as: (a) FM mode is best utilized for music broadcast as contrasted with talk broadcasts; (b) security concerns in sensitive areas prone to communal/caste tensions as policing of radio stations is difficult. However, it has been observed that this restriction has a substantial effect on the number of listeners, which in turn adversely affects the advertising revenue.[30] The radio industry in India shares only around 2%[31] of the advertising pie out of which 1% is attributable to AIR while the share of the radio industry in advertising in other countries like USA, Australia etc. is about 12%.[32]
  2. Sharing of Facilities: The License Agreement stipulated that the transmission facilities of the private broadcasters in the metro centers should be co-located. However, in spite of a model contract having been supplied to the bidders, there were delays in arranging for co-location as agreement of various parties was necessary for the same.[33] The ability to amend the standard co-location agreements was a variation that ought not to have been undertaken.
  3. Restriction on Foreign Investment: As per the prevailing Industrial Policy, in case of FM broadcasting the licensee is required to be a company registered in India under the Companies Act, 1956. All shareholding in such company is required to be Indian except for portfolio foreign investment by FIIs/ NRIs/ PIOs/ OCBs subject to such ceiling as may be decided from time to time (as on the date of the report, upto 20% portfolio foreign investment is permitted). No direct investment by foreign entities, NRIs and OCBs is permitted in the licensee company. This policy is at variance with the foreign direct investment policy in other media segments.This may impact the availability of funds.
  4. Restriction on Multiple Licenses: Presently, there are restrictions on an entity holding multiple FM broadcast licenses in the same center that arguably does not allow content specialization.
  5. Technological advances have made available satellite radio services in India for which such broadcasters are not presently required to pay any license fees to the Government as the broadcast is through a satellite and the uplinking facilities are also situated outside the country. There is a need to address such technological advances. Whilst FM broadcasters in India are not allowed to broadcast news and current affairs, satellite channels, many of which are owned by foreign companies, are broadcasting news that is received by audiences in India.

Part III
Legal Aspects of
Privatisation of Frequencies
Chapter V
Legal regime Governing Airwaves

Prior to a discussion on the most appropriate contractual framework for the second phase of radio privatization it would be pertinent to examine the legal regime governing airwaves and the framework governing government contracts in India.

A. Freedom of Speech and Expression:

Article 19 (1) (a) of the Constitution of India guarantees to every citizen of India the fundamental right of freedom of speech and expression. The right however, is not absolute and is subject to reasonable restrictions on the grounds specified in Article 19(2) (viz. security of state, friendly relations with foreign states, decency or morality, contempt of court, public order and defamation). Courts have held that the freedom of speech and expression includes within its ambit liberty of press[34] (including freedom of circulation[35], not only volume of circulation but also volume of news and views[36]).

B. Legislations:

The Indian Telegraph Act, 1885 (“Act”) is the principal legislation governing radio broadcasts in India. Though the broadcasting sector could not have been in contemplation at the time the Act was drafted, by application of the doctrine of purposive interpretation[37]the courts have held that the provisions of the Act would also be applicable to radio broadcasts. In light of judicial dicta, radio broadcasts in India are also governed by the Act.[38]

The Act vests the power of regulating and licensing broadcasting in the Government.

Section 4 of the Act reads as follows:

“Within India the Central Government shall have the exclusive privilege of establishing, maintaining and working telegraphs. Provided that the Central Government may grant a license, on such conditions and in consideration of such payments as it thinks fit, to any person to establish, maintain or work a telegraph within any part of India. Provided further that the Central Government may, by rules made under this Act and published in the Official Gazette, permit, subject to such restrictions and conditions as it thinks fit, the establishment, maintenance and working (a) of wireless telegraphs on ships within India territorial waters and on aircraft within or above India or Indian territorial waters and; (b) of telegraphs other than wireless telegraph within any part of India. The Central Government may, by notification in the Official Gazette, delegate to the telegraph authority all or any of its powers under the first proviso to sub-section (1). The exercise by the telegraph authority of any power so delegated shall be subject to such restrictions and conditions the Central Government may, by the notification, think fit to impose."

The term “telegraph” has been defined under Section 3(1) of the Act as follows:

“any appliance, instrument, material or apparatus used or capable of use for transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature by wire, visual or other electromagnetic emissions. Radio waves Hertzian waves galvanic, electric or magnetic means.

Explanation- "Radio waves" or "Hertzian waves" means electromagnetic waves of frequencies lower than 3,000 giga-cycles per second propagated in space without artificial guide."

It is clear from a reading of the provisions of Sections 4(1) and 3(1) of the Act that the Government has the exclusive privilege of granting licenses for establishing, maintaining and working appliances, instruments, material or apparatus used or capable of use for transmission or reception of signs, signals, images and sounds or intelligence of any nature by wire, visual or other electro-magnetic emissions, Radio waves or Hertzian waves, galvanic, electric or magnetic means. As per International Telecommunications Union (ITU), the word ‘Telecommunications’ includes radio broadcasting which is one of the forty different types of radio communication service.

C. Judicial pronouncements:

Airwaves and the Freedom of Expression:

The Hon’ble Supreme Court in the case of Secretary, Ministry of Information and Broadcasting v. Cricket Association of Bengal,[39] has observed that:

  1. "The airwaves or frequencies are a public property. Their use has to be controlled and regulated by a public authority in the interests of the public and to prevent the invasion of their rights. Since the electronic media involves the use of the airwaves, this factor creates an inbuilt restriction on its use as in the case of any other public property.
  2. The right to impart and receive information is a species of the right of freedom of speech and expression guaranteed by Article 19(1)(a) of the Constitution…However, this right…has limitations on account of the use of the public property, viz., the airwaves, involved in the exercise of the right and can be controlled and regulated by the public authority…”[40]

This fundamental right may be limited only by reasonable restrictions under a law made for any of the purposes mentioned in Article 19 (2) of the Constitution of India.

This fundamental right may be limited only by reasonable restrictions under a law made for any of the purposes mentioned in Article 19 (2) of the Constitution of India.

Nature of Free Speech Rights in Airwaves:

Broadcasting freedom involves a delicate balance between a number of interests viz. (a) freedom of the broadcaster from censorship etc.; (b) freedom of the listeners/viewers to a variety of views and plurality of opinion to enable them to make sensible choices on political and social issues which necessitates imposition of programme standards, cross media restrictions, networking restrictions limiting the freedom of radio and television companies; and (c) right of the citizens and groups of citizens to have access to the broadcasting media, to communicate effectively to a mass audience.

On the issue of monopoly in the broadcasting sector the Hon’ble Supreme Court observed that broadcasting is a means of communication and, therefore, a medium of speech and expression. Further, the electronic media is an extremely powerful media on account of its audio-visual impact and its wide reach covering sections of society untapped by the print media. Hence in a democratic polity, neither any private individual, institution or ogranisation nor any Government or Government organisation can claim exclusive right over it. The Constitution also forbids monopoly either in the print or electronic media. The power given to the Government to license and the censor under the respective legislations has to be read in the context of Article 19(2) of the Constitution which sets the parameters of reasonable restrictions which can be placed on the right to freedom of speech and expression. In light of the above it is evident that:

  1. No person has the right to own and/or operate a private broadcast station without a license from the Government; and
  2. The power to censor films and to grant licenses for establishing, maintaining or working a telegraph for the purpose of broadcastingis required to be exercised by the Government in conformity with the provisions of Article 19(2) of the Constitution.

Chapter VI
Legal Regime Governing Government Policy, Contracts And
Tender Process:[41]

The action of the State in the award of a contract is governed by the mandate of Article 14 of the Constitution of India which excludes arbitrariness in State action and requires the State to act fairly and reasonably. In Tata Cellular v. Union of India,[42] the Hon’ble Supreme Court has laid down the following principles governing judicial review of the exercise of contractual powers by Government bodies:

  1. The court does not sit as a court of appeal but merely reviews the manner in which the decision was made. Consequently, the terms of invitation to tender are not open to judicial scrutiny.
  2. The modern trends point to judicial restraint in relation to administrative action. Judicial dicta support the view that the Government must have the freedom to contract

Judicial Review of Government Policy

The Supreme Court of India has consistently taken the view that judicial interference in Government policy is not desirable.[43] There have been exceptions to this general rule. The power of the judiciary to interfere has been the subject matter of extensive debate in case law. However, the judicial position in this regard has crystallized over the last few years and is as set out below.[44]

In Delhi Science Forum v. Union of India[45], the National Telecom Policy 1994 was challenged on the grounds of endangering national security and the economic interests of the State. One of the arguments advanced by the petitioners was that granting licenses for private participation in the telecommunications sector would endanger the national security as well as the economic interests of the State. The Court counseled judicial restraint in interfering with Governmental discretion in the realm of economic policy. The Court indicated that a challenge to an economic policy would be maintainable only when

  1. “The decision has been taken in bad faith;
  2. The decision is based on irrational or irrelevant considerations;
  3. The decision has been taken without following the prescribed procedure which is imperative in nature. ”
    The Court observed that –

“The question of awarding licenses and contracts does not depend merely on the competitive rates offered; several factors have to be taken into consideration by an expert body which is more familiar with the intricacies of that particular trade. While granting licenses a statutory authority or the body so constituted should have latitude to select the best offers on terms and conditions to be prescribed taking into account the economic and social interest of the nation. Unless any party aggrieved satisfies the court that the ultimate decision in respect of the selection has been vitiated, normally courts should be reluctant to interfere with the same.”[46]

The Supreme Court accordingly dismissed the petition on the above grounds. The aforesaid decision re-emphasizes the judgment of the Supreme Court in Tata Cellular’s case wherein the Supreme Court held that the decision must not only be tested by the application of Wednesbury principle of reasonableness (i.e. whether it is so unreasonable that no reasonable person would have arrived at it) but must also be free from arbitrariness, not affected by bias or actuated by mala fides. The Court had observed that it was open to the court to review the decision maker’s evaluation of the facts. If the weight of facts pointing to one course of action is overwhelming, then a decision the other way, cannot be upheld by the courts. Further, a decision cannot be regarded as reasonable if it is partial and unequal in its operation as between different classes.

In Krishan Kakkanth v. Govt. of Kerala[47], the Supreme Court was faced with the argument that the appointment of Approved Dealers was violative of constitutional guarantees. The Court opined that –

“To ascertain unreasonableness and arbitrariness in the context of Article 14 of the Constitution, it is not necessary to enter upon any exercise for finding out the wisdom in the policy decision of the State Government. It is immaterial whether a better or more comprehensive policy decision could have been taken. It is equally immaterial if it can be demonstrated that the policy decision is unwise and is likely to defeat the purpose for which such decision has been taken. Unless the policy decision is demonstrably capricious or arbitrary and not informed by any reason whatsoever or it suffers from the vice of discrimination or infringes any statute or provisions of the Constitution, the policy decision cannot be struck down. It should be borne in mind that except for the limited purpose of testing a public policy in the context of illegality and unconstitutionality, courts should avoid “ embarking on [the] unchartered ocean of pubic policy””/>(emphasis supplied)

The position with regard to judicial interference in economic policies of the Government was re-emphasized recently in BALCO Employees Union v. Union of India[48]. The said case involved a challenge to privatization of Bharat Aluminium Co. Ltd. The court in the process of reiterating the already established position in relation to judicial interference in economic policy decisions of the Government stated that –

“… it is neither within the domain of courts nor the scope of judicial review to embark upon an enquiry as to whether a particular public policy is wise or whether better public policy can be evolved. Nor are our Courts inclined to strike down a policy at the behest of a petitioner merely because it has been argued that a different policy would have been fairer or wiser or more scientific or more logical.”[49]
(emphasis supplied)

The Court also reiterated that –

“The policies of the Government ought not to remain static. With the change in economic climate, the wisdom and manner for the Government to run commercial ventures may require reconsideration. What may have been in the public interest at a point of time may no longer be so… If the initial decision could not be validly challenged on the same parity of reasoning, the decision to disinvest also cannot be impugned without showing that it is against any law or malafide.”[50]
(emphasis supplied)

The position therefore is clearly established that as a rule the judiciary shall not ordinarily interfere with economic policy decisions of the Government. The Supreme Court has further recognized that the very nature of economic decision-making may demand changes from time to time in light of emergent circumstances.

Part - IV
The Way Forward:
Licenses For Phase II
Chapter VII
The Concerns And Objectives Of The Committee

As has already been observed in the chapters on the experience in relation to Phase-I of radio licenses the results of the privatization process have not been very encouraging and much of industry has turned commercially unviable. Irrespective of the nature and causes of such results there is public interest involved in this industry as frequencies are scarce public resources. Consequently it is not only in the interest of but also the duty of the Government as well as the industry players to ensure that the spectrum is utilized effectively. The Committee is of the opinion that if optimally regulated, radio has tremendous growth potential and could provide an effective communication link across the country. Therefore, it is imperative that the radio industry be rescued from this sickness.

To make the FM broadcasting business viable certain restrictions and terms in the Tenders Documents and the License Agreement need to be reconsidered like the duration of the license, restriction on FDI, restriction on transmission of news and current affairs, restriction on multiple licenses in one center etc. The main object of reconsideration of these terms is to encourage the industry, create more market opportunities, provide the existing private broadcasters with means for effecting reduction of costs and attract infusion of additional funds.

Important consequences follow from recognition of the fact that airwaves are public property. The Government could balance its concerns for revenue generation with the need to develop new radio broadcast destinations, with a view to encourage growth of the radio industry. The Working Group noted that undue emphasis on treating these services as a source of revenue is counter productive as it hinders growth and quick roll out of services to the people.[51] At the same time being public property they cannot be allotted at an undervalued price for such an action would fall foul of Article 14 of the Constitution of India.[52]

Much of the valuable time wasted in negotiations, clarifications and litigation could have been saved through proper documentation and proper bid/auction procedure. As has already been observed the principal reasons for failure of the first phase of liberalization were: (a) speculative bidding due to absence of stiff penalty clauses on withdrawal; (b) post-bidding variation in the Tender Documents and the LOI/ License Agreement and (c) inappropriate forfeiture clauses which provided easy exit options to the industry players.

Each of these can be addressed through a strong contractual and policy framework. In this respect it is submitted that:

  1. The Government should formulate a detailed and clear FM broadcast policy[53];
  2. The Tender Documents should reflect the terms of the policy and the guidelines thus framed and should include a draft model license agreement, consortium agreement etc as standard fixed form contracts.

The Committee has formulated its recommendations for the issue of the Phase-II FM broadcast licenses with the following objectives and concerns:

  1. Simplifying the process of licensing and the regulations.
  2. Recognition that the radio industry has great potential for growth and the ability to bind India in a communication web.
  3. Addressing the regulatory and market imbalances.
  4. Creation of a conducive environment for growth of the industry through a structure of incentives and checks and balances.
  5. The opportunity to reconsider the license terms in light of any technological advancements in future and to vary the revenue sharing arrangement, at the end of every five years during the term of the license, ( based on empirical evidence and documented experience in the market place), should be embedded in the license agreement.

Chapter VIII
The Licensing Process And The License Fee

A. Changes in the Bidding Process:

Rationale:

The Committee is of the view that the open auction bid process was not suitable for auctioning of the frequencies and did not yield the desired results . Various legal challenges were raised in connection with the open auction bid process followed in case of Phase I of the liberalization of FM broadcasting. As mentioned earlier, the euphoric projections that drove bidding were unjustified as the assessment of the market and the projected revenues by the bidders were wide off the mark. Further, the bidders did not submit proper documentation and did not carefully study the market. Therefore, the first year license fee, arrived at through the bidding process, was in several cases entirely unrealistic. As a result several of the licensees defaulted and are even today making huge losses. In view of the above, the process of bidding for the licenses for FM broadcasting to be issued in the second phase needs to be reviewed.

Options:

International instruments like the WTO Agreement on Government Procurement and the UNCITRAL Model Law on Government Procurement as well as the guidelines of various international financial institutions like the World Bank, IAB etc. classify the acceptable tendering processes for public properties as tender, auction, or negotiation.

In light of the above any of the following processes may be adopted for issuing licenses for FM broadcasting:

  1. Tender Process: The Government generally follows the method of bidding through a tender process wherein each applicant submits bids in a sealed cover that are opened on a specified date in the presence of all the bidders and the person with the highest bid that is in conformity with the tender documents is generally awarded the contract.[54] A two part bid process – the first part being the technical bid and the second part consisting of the financial bid - is also followed by the Government.
  2. Auction process: Yet another process that has been suggested by some industry players[55] (which is a variant of the process followed in Phase-I) consists of a simultaneous on-line bid process. In this process bids are placed simultaneously from a computer terminal by bidders but the identity of bidders is not disclosed to other bidders till the end of the auction process. The process can be monitored by external auditors to ensure impartiality.

Assessment:

The auction process per se has not been found suitable for the FM broadcast licensing in India. The problem of incipient sickness in the radio industry due to faulty bidding should not recur. Therefore, merely changing the auction process followed in Phase I to an on-line bid process may not be sufficient. Further, the on line-bid process has not been tried in India. The Committee recommends adoption of the tender process for award of FM broadcast licenses due to the following reasons:

  1. It is a standard and simple process followed by the Government in numerous sectors whereby sufficient experience has been garnered. The process is also judicially well recognised.
  2. It is an internationally well accepted process[56].
  3. It is the preferred process, specifically for broadcast licences. It is one of the prescribed processes in case of auction of spectrum licenses in Australia and is also followed in the United Kingdom. The European Community recommendation on Independent Broadcast Regulator also envisages a tender process for broadcast licenses.

B. The Tender Process for Phase-II of FM Broadcast Licensing

Objectives:

The principal objective of the tender process is to ensure that only qualified and committed players participate in the bid process so that the ultimate price arrived at represents fair value of the frequency. In addition, it is also to be ensured that the frequency is utilised expeditiously and efficiently.

The above objectives may be achieved by deterring speculative bidders by imposing sufficiently high penalty in case of withdrawal. Speculative bidding can further be discouraged through (a) stricter technical and financial pre-qualification along with a requirement for bidders to submit a viability study of the bidders’ business plans with sensitivity analysis in case of economic downturns (as detailed herein after); or (b) upfront payment of the entire fees for the first year of the license; or (c) a combination of both.

Further, the Committee is of the view that the Tender Documents should provide for submission of a business plan by each bidder along with the bid documents detailing the manner in which the bidder seeks to develop the frequency along with his business forecasts and projections (including niche programming and non-musical programmes). This business plan must be made binding on the bidder and deviations from the same may be permitted for strong and cogent reasons only.

Application Process:

Advertisement inviting tenders for specified frequencies should be published in the local newspapers in the concerned areas and in leading national daily newspapers. The advertisement should specify the manner (i.e details of the place, contact person, price, time etc.) for procuring the application form along with the tender documents (including the license agreement, letter of intent, bank guarantee formats etc.).

The application form should also be available through the internet by paying small fee. The application form should be detailed (it should require disclosure of details relating to source of funds, cross media holdings, loan and share holding, subscription agreements etc.) and should preclude the need for seeking any further information (as opposed to seeking clarifications on information that may be submitted by the bidders), since seeking further information at a later stage may erode the credibility of the whole process. The Tender Documents should also prescribe a time period during which the bidders may seek clarifications and a time limit for the Government for responding to such requests for clarifications.

The bidders should be required to submit along with the application form all the supporting documents, earnest money deposit, a business plan and a bid in two parts - a technical and a financial bid. The bid license amount (entry fees) quoted must be based on the business plan and should be accompanied by a bank guarantee for the full amount of the entry fees. The application should also be accompanied by a viability study by an eligible financial institution/ bank (“Eligible Financial Institution/Bank”) willing to finance the project in principle and having financed at least five projects of a capital cost of Rs. 25 crores and above.

The Government should have the liberty to seek clarifications from the bidders on the information supplied or ask for additional documents within a strictly prescribed time limit.

As is the practice followed by the Government in case of privatization transactions, the financial bid documents submitted by each of the bidders should be countersigned on the reverse of such documents by all the other bidders (without disclosing the contents thereof) in order to prevent any charges of substitution of bids or manipulation.

Licensing Process:

The License process should consist of the following rounds.

  1. The first round should be the prequalification round and only bidders complying with the financial and technical eligibility criteria specified in the tender documents and as certified through a viability/ sensitivity study by an Eligible Financial Institution/Bank should qualify for the next round. The security for participating in this stage should be the earnest money deposit.
  2. After the pre-qualification stage, the financial bids of the qualified applicants should be opened at a notified time and place to determine the Entry Fees.

The bid license amount must be based on the business plan and the security for the same should be in the form of an irrevocable, unconditional and confirmed bank guarantee for the full amount of the quoted license fees. The bank guarantee shall be the security for the period from the date of application till the date of payment in full of the entry fees (i.e. the date of allocation of frequency).

In the tender process the entry fees could naturally be different for each bidder. The number of highest bidders that equal the number of frequencies available, would automatically win the frequencies available at each center (e.g. if there are seven frequencies available at a center, the seven highest bidders would be allotted the frequencies).

Immediately upon award of the bid 25% of the entry fees should be payable and the frequency should be allocated only upon payment of the balance amount of the entry fees.

Broad Features:

  1. License application in prescribed form.
  2. As the frequencies are public resources the viability of the proposed business model of the licensee should be certified subject to a 5-10% variation in the key financial assumptions by an Eligible Financial Institution.
  3. The bidders should furnish a revolving performance bank guarantee renewable annually (the bidder shall ensure that the bank guarantee is renewed for a further term of one year no later than one month prior to the expiry of the term of the bank guarantee) to secure the revenue share payable by the licensee to the Government. Such revolving bank guarantee to be for an amount calculated with reference to the projections provided by the bidder in its business plan, subject to upward revision in light of the financial performance of the licensee during the immediately preceding year. The bank guarantee should be in the form prescribed in this regard.
  4. The financial bank guarantee would be the security for payment of the entry fees for the period from the date of application till the date of full payment of entry fees (i.e. the date of allocation of frequency). The revolving performance bank guarantee shall be the security for the entire period of the license for the payment of the annual revenue share by the licensee.
  5. In case the number of bids exceed the number of frequencies available then the unsuccessful bidders should be kept on a waiting list and allowed to step in sequentially in order of bid ranking, in case of default by the successful bidder.
  6. Time to be of essence in the contract and time limits similar to Phase I.
  7. Obligation should be cast to achieve financial closure in the specified time limit.
  8. Quarterly reports detailing revenue particulars in accordance with the prescribed forms, annual returns, directors’ report, and all information provided to any Governmental body (like SEBI) or stock exchanges etc. should be furnished.
  9. All agreements in relation to the business should be filed with the Ministry within 15 days of execution of the license agreement.
  10. To facilitate financing of the project, step-in rights should be granted to nominees of lenders having the required expertise in the area and are acceptable to the Government. The lenders should be given the right to appoint nominees in case of breach of the terms of the license agreement by the licensee and failure to remedy such breach within 30 days of notice (“Cure Period”) of such default by the lenders. Save for the substitution rights of the lenders, the license should be non-transferable and assignment of the same should not be permitted.
  11. The Government may permit the lenders to be named as loss payees in the insurance documents relating to the project, if the lenders so require.
  12. The Government should have the right to order a special audit of the licensee’s business, the cost of which should be borne by the licensee.
  13. Licenses should be terminable by the licensee by serving a notice of termination six months before the intended date of termination (the bidder to be liable to pay the license fees for the notice period).

Incentives and Security Structure:

  1. The initial security to participate in the bidding process should be earnest money deposit which should be non-adjustable and non-refundable and of an amount sufficient to cover the cost of an entire rebid process.
  2. The unconditional, irrevocable bank guarantee for the amount of the entry fees submitted alongwith the application itself, should be the security for the period commencing from the date of application till the date of payment in full of the entry fees (i.e. the date of allocation of frequency).
  3. The license fees payable on a revenue share basis (commencing from the second year of the term of the license onwards) should be paid in advance for the next year (calculated on the basis of projections in the business plan) one month before the commencement of each year during the term of the license. As stated earlier, payment of the annual revenue share by the licensee shall be secured by a revolving performance guarantee renewable annually.
  4. In case of a consortium of bidders, notwithstanding any apportionment of liability inter se the bidders, the liability to the Government and lenders should be joint and several.
  5. Based on the prevailing technology, the impact of the licensee in its territory of operation, regularity of the licensee in payment of fees and compliance with the terms and conditions of the license, the Government may, at its sole discretion, renew the license for a further period of five years. This will provide an incentive to the licensee to comply with all terms and conditions of the license agreement.

In the event of breach of any of the material conditions of the license agreement, the license should be revoked and the concerned licensee should be blacklisted. Such a measure would provide sufficient deterrence to non-serious bidders.

The license fees due and payable by the licensee to the Government should have priority over any lenders’ dues.

C. Change in the License Fee Structure:

The fixed annual license fee (that escalates annually at the rate of 15%) determined by the auction procedure in Phase-I of award of FM broadcast licenses has not proved to be beneficial to development of the radio industry. It is widely felt by market analysts as well as industry players that the manner of charging license fees needs to be revised. In such circumstances migration of the license terms from a fixed license fees basis to a one-time entry fee with an annual revenue sharing arrangement as in the case of cellular telephony licenses in India appears to be the most suitable option. The model may be explained thus:

  1. Entry Fees: The entry fees may be determined by the process (as in cellular licenses[57]) / be specified upfront. However, in the absence of objective criterion to determine entry fees, to ensure transparency in the process, it is advisable that the market forces should determine the entry fees. If the Government specifies entry fees it would in effect be in the nature of a reserve price which will create market distortions. The Committee recommends that the entry fees should be determined by a competitive bid process that will reflect the true market value of the frequency.
  2. Annual Revenue Share: The Tenth Plan has specifically identified as one of the thrust areas for radio “encouraging private participation in providing quality services and replacing the existing system of bidding for licenses with a revenue share mechanism”.[58] The revenue share model has been used in a number of instances in India. Typically, such a model would imply that the licensee would share a pre-determined fixed percentage of its annual gross revenue with the Government in lieu of a fixed annual license fee. The manner for computing the gross revenue of the licensee may be provided for in the license agreement, which would be in accordance with applicable accounting standards. The entire revenue of the licensee, irrespective of whether it relates to the business of radio broadcasting or any other business being carried on by the licensee, shall be included for the purposes of computing the gross revenue. In the past, bidders and/or licensees have litigated on this issue insisting on exclusion of other income while computing gross revenue. The Committee is therefore of the view that it should be expressly stated in the license agreement that gross revenue of the licensee would include all its revenues whether relating to the business of radio broadcasting or not.

In this regard, it may be mentioned that:

  1. In case of auction of the fourth round of cellular licenses in India the specified fixed revenue share is 15% of the gross revenue.
  2. In case of DTH License specified revenue share is 10% of the gross revenue.[59]
  3. In case of major ports the revenue share is determined through the bid process itself.

Internationally the revenue share model is widely used in spectrum allocation and broadcast licenses. Typically the revenue share is specified or determined through a formula (e.g. in Canada, Australia etc.). However, it has been observed that in case of radio the revenue share that is stipulated internationally is much lower than the percentages specified in India in various sectors like DTH, telecom etc. For instance, in Australia the revenue slabs range from 0.25% to 3.25%.[60] Also as opposed to cellular telephony licenses the number of players in the radio industry is much larger. It is expected that greater the number of players in the radio industry higher would be the aggregate income and therefore, specifying an appropriate revenue share would attract a higher number of applications from serious bidders.

In view of the prevailing sickness and the nascent stage of the radio industry the Committee recommends a revenue share of 4%.[61] This revenue share should be subject to review by a committee every five years and may be increased/decreased depending upon the then prevailing market conditions and other relevant considerations. Such revision will under the agreements not considered as a change in law clause.

In case of a revenue share arrangement concerns have been expressed about possible misuse of the system through revenue understatement. In this respect the following may be noted:

  • The Tenth Plan has also envisaged a revenue share mechanism in radio.
    • The revenue sharing arrangement has been tried in a number of instances in India (like Telephones/Major ports etc.) and in the media sector as well (in case of DTH).
    • Revenue understatement may be a cause of concern in case of large public utilities but radio is comparatively a small local industry with much smaller capital investment and revenue flows. The only form of revenue in the radio industry is in the nature of advertising and opportunities of revenue understatement are therefore much less in comparison to an infrastructure industry like electricity or oil.
  • Detailed guidelines have been formulated in relation to related party transactions in Accounting Standard 18 of the Institute of Chartered Accountants of India.
  • Internationally the revenues share model is used in spectrum allocation (as in Australia) and broadcast licenses.

However, in order to address concerns of revenue understatement the Committee recommends that:

  • The revenue share shall be computed on the basis of gross revenue.
  • Further, the Government should be entitled to require an audit of the accounts of the licensee, at the cost of the licensee. These audits shall be separate from the obligation of the company to maintain audited accounts that represent a “true and fair view” of the affairs of the company and are in conformity with the accounting standards issued by the ICAI or other authorities.
  • In the course of its deliberations the Committee has highlighted the need for a regulator for the radio industry. As and when a regulator is constituted it would have the necessary expertise to regulate revenue understatement through appropriate guidelines for accounting.[62] As in case of the insurance sector, the regulator may by rules or regulations prescribe the format to be followed by licensees for reporting the gross revenue. Formulation of such a format for reporting gross revenue may be done by the regulator in consultation with the Institute of Chartered Accountants of India. In the interim, till such regulator is constituted the Ministry may issue clarifications to seek further clarity in accounts.
  • The licensees should follow all relevant accounting standards of the Institute of Chartered Accountants of India like the accounting standard on segment reporting and the accounting standard on related party transactions.

In the presently proposed structure wherein licensees would pay one time entry fees and thereafter for the term of the license (from the second year onwards) pay an annual revenue share, in so far as the first year is concerned, the license fees that would be payable by a licensee to the Government will consist of only the entry fees. Operationalisation of frequencies would be possible only after earmarking of frequency, grant of operational license by the WPC and SAFCA clearance. Therefore, as was the case in Phase-I, the bidders would be granted a time period of one year to operationalise the license (involving grant of license by WPC and subsequently setting up of required infrastructure in place). Even if a licensee operationalises its license before the expiry of the permitted one year period no revenue share should be claimed by the Government from the licensee. From the second year of the term of the license the license fees would consist of the specified fixed revenue share.

The annual license fees payable by a licensee for the second year of the term of the license shall be paid in advance no later than the eleventh calendar month from the date of the license based on the projections provided in the business plan. The license fee thus paid by the licensee to the Government shall be reconciled in the next fifteen months period based on actual performance of the licensee and the adjusted actual amount due, if any, shall be paid by the licensee no later than twenty-seven months from the date of the license.

The same process would be followed from year to year for the term of the license. The Government/ regulator may, if considered desirable, make the accounting for the revenue share on a six monthly basis. The last year of the license term shall similarly be accounted for and notwithstanding the expiry of the license the obligation of the licensee to pay the annual/six monthly revenue share should subsist. At an interval of every five years, Revenue Sharing percentage will be reviewed by the Government.

Chapter IX
Reconsideration And Rationalization Of Certain Terms And Conditions

Duration of Licenses

The duration of the licenses in Phase-I of the award of FM broadcast licenses was fixed at ten (10) years and no extensions were permissible on any grounds whatsoever. Internationally the initial period of license is lower (e.g. in Canada the period is seven (7) years[63], in U.K it is eight (8) years), however, in many countries renewal of the licenses is permitted which taken together with the original license period would mean that the term of the license would be more than 10 years (e.g. in Canada renewals of license for terms not exceeding seven years (7) is permitted[64] while in U.K licenses are renewable for one term not exceeding eight (8) years, after the completion of the first eight (8) years of license).

The Committee recommends that the licenses renewal may be permitted. The license would be valid be for a period of 10 years from the date of grant of operational license by WPC as in case of Phase-I. Subject to satisfactory performance by the licensee and provided that no default has occurred during the license period, the license may be renewed for one further period of five years at the sole discretion of the Government. The Government should take into account various factors while considering an application for renewal of the license, for instance, the total gross revenue generated during the term of the license, the benefits to the public, diversity of content being broadcast by the licensee etc. We would like to add that fast developments are taking place in the field of Digital Audio Broadcasting which has number of advantages over existing Analogue transmissions such as AM and FM. It is certain that analogue systems currently in vogue will be phased out one day and digital systems will be introduced in future.[65] The assessment and recommendation for renewal of license will be made by the independent regulator, keeping in view the developments in the field of Digital Audio Broadcasting technology at that time. The possibility of such a renewal of the license would provide an additional incentive to the broadcasters to comply with the terms and conditions of the license agreement during the initial period of the license.

Multiple Licenses in the Same City

In phase I, the licensees were not permitted to own multiple frequencies in same city. The objective of restricting award of multiple licenses in the same center to one player is to prevent broadcast monopoly/duopoly/oligopoly on airwaves. This restriction is in consonance with the mandate of Article 39 of the Constitution of India and the dicta of the Hon’ble Supreme Court in the case of Cricket Association Board v. Secretary, Ministry of Information & Broadcasting.

However, due to non-viability of the radio industry the restriction on multiple licenses in the same city needs to be reviewed. While the restriction on multiple licenses in the same center has been recognized internationally the recent trend is towards abolition of such restrictions.[66] Where the number of broadcasters are relatively small, programme diversity may be enhanced by a single entity controlling more than one channel, because that entity would like to differentiate the content of each of the channels. In contrast, more owners or licensees would not necessarily achieve the same results.

The Committee has therefore, balanced the need for market expansion and diversification with the competing ill of abuse of dominance. To address the concern of monopoly/oligopoly and in order to ensure diversity of content the Committee suggests that:

  1. The number of frequencies that an entity, directly or indirectly, may hold in a particular center be restricted to 3 or 33% of the total licenses available in the center, whichever is less.
  2. No entity shall hold more than one frequency ( license) for news and current affairs in any one center.
  3. Further, such additional licenses should be permitted only if the total number of frequencies available in a center to establish a broadcast station (including frequencies in Phase-I) is equal to or more than six (6).
  4. The total number of frequencies that an entity may hold, directly or indirectly, nationally in each phase should not be more than 15% of the total number of frequencies being tendered during the phase.[67] The bidder should at the time of submitting a bid furnish a declaration to the effect that it shall not accept bids for more than 15% of the frequencies offered in any phase.
  5. An undertaking should be said to be in a dominant position if it holds more than 15% of the total operationalised licenses in the country and in the event of abuse of dominance by such dominant undertakings the Government or the regulator, as the case may be, should have the power to order the sale of the licenses, through a tender process, to other undertakings that are not connected in any manner whatsoever, with any dominant undertaking. This condition of reserving the right of the Government or the regulator (as the case may be) to break up a monopoly, should be part of the tender documents so as to minimize the chances of litigation.
  6. The content plan for each separate frequency at the same center being bid for by the same bidder must to be different to ensure wider availability of choices to the listeners.
  7. The licensees would neither be permitted to network among the multiple channels in one center, nor would they be allowed to network with another licensee in the same center.
  8. Each license should constitute a separate undertaking and licensees should maintain separate accounts for each frequency allocated to them. It should be the endeavour of each licensee to properly segment the expenditure with reference to each license in accordance with the applicable accounting standards or guidelines issued by Institute of Chartered Accountants of India.

Networking:

Networking or chain broadcasts means simultaneous broadcast of programmes by the same licensee on different frequencies or by different licensees. Networking implies connectivity between radio stations – real time through satellite or telecom networks. As has already been mentioned earlier, licensees in Phase I were not permitted to network except on important occasions with the prior permission of the Government. The License Agreement states that “The Licensee shall not carry out networking of broadcasting stations provided, however on special and important occasions networking may be done on prior written approval of the Licensor.” This essentially means that the same content will not be transmitted simultaneously through more than one transmitter.

However, in view of the fact that the Indian radio industry has turned unviable there is a need to review the restriction on networking. In case of small centers (we have been informed that Phase II of liberalization of FM broadcasting envisages auctioning of licenses in a number of such areas) there may not be enough local content available while capital expenditure and operational expenditure will would be quite high, which renders the market unviable in these centers. Besides rapid technological changes have made it difficult to police and enforce networking restrictions.

In light of the above the Committee is unanimously of the view that networking should be permitted so as to reduce capital and operating costs and to provide incentives to the industry to develop the market in ways that best serve the public interest and are in consonance with the wider policy goals.

The Committee is of the view that the appropriate level of networking across different centers should be decided by the market forces. If the licensee repeats the programmes broadcast on the different frequencies licensed to such licensee it would be reasonable to expect the customers to reject such programming as variety and differentiation would determine radio listening. It is imperative for the growth of the radio industry that the market is provided an opportunity to mature and be responsive to the needs of consumers. The regulation of networking should emphasize regulation of anticompetitive practices with a view to curb abuse of dominance.

Therefore, the Committee recommends that the restrictions on networking should be lifted and that the appropriate level of networking across centers should be determined by the market forces. The Committee is of the opinion that the market mechanism will ensure differntiation of content reflecting listener’s choice.

Networking or replication/ sharing of programmes between licensees, whether in the same or different centers, should be prohibited. Further, networking should not be permitted between frequencies licensed to the same licensee within the same center (city). However, on special occasions networking may be permitted with the prior permission of the Government.

News and Current Affairs:

The reasons advanced to justify the restriction on news and current affairs coverage in private FM broadcasting do not appear to be very relevant any more in the current scenario due to the following reasons:

  1. The important social role that news programmes and channels perform has been well recognized. In LIC v. Manubhai Shah, (1992) 3 SCC 637 the Hon’ble Supreme Court observed that “it is well known that these communication channels are great purveyors of news and views and make considerable impact on the minds of the readers and viewers and are known to mould public opinion on national issues of vital importance”.
  2. The policy in respect of private FM broadcasters is at variance with the existing policy in relation to television and print media broadcasters as they are permitted to air news programmes or print news. Thousands of different newspapers in a variety of languages are already in circulation covering the length and breadth of the country.
  3. One of the objectives of privatization was to provide diversity of content on radio and to provide education, information and entertainment through radio. The restriction on news and current affairs coverage militates against this objective.
  4. Radio has been envisaged as a local medium (local content requirement in case of radio is internationally well recognized and in Indian context as well) and news and current affairs constitute the most important local content.
  5. It is a well accepted legal proposition that the possibility of abuse of a right or difficulties in monitoring it are not a permissible ground for negation of a right. The Honble Supreme Court has specifically observed[68] in relation to broadcast that“the wider range of circulation of information or its greater impact cannot restrict the content of the right nor can it justify its denial”. In relation to certificate for exhibition of a film it was observed in S. Rangarajan v.UOI, (1989) 2 SCC 574, that“if the film is unobjectionable and cannot constitutionally be restricted under Article 19 (2), freedom of speech and expression cannot be suppressed on account of threat of demonstration and processions or threats of violence. That would tantamount to a negation of the rule of law…it is the duty of the State to protect the freedom of speech and expression since it is a liberty guaranteed against the State. The State cannot plead its inability to handle the hostile audience problem. It is an obligatory duty to prevent it and protect the freedom of speech and expression.”
  6. The Hon’ble Supreme Court in the case of Ministry of Information and Broadcasting v. Cricket Association of Bengal opined that the freedom of speech and expression includes the right of a broadcaster to inform, educate and entertain and of the viewers to be informed, educated and entertained.[69] In light of the aforesaid, it may be contended that the right of a private broadcaster to air news programmes is entitled to protection on the grounds of the right to freedom of speech and expression.
  7. The Committee has also taken note of the fact that AIR is providing news and current affairs on its FM channels though the Committee appreciates that public broadcasters stand on a different footing from private broadcasters.
  8. In any event, due to their inherent nature news and current affairs programmes are not capable of any precise definition especially in case of radio and therefore, the restriction is not likely to be observed in letter and spirit.

In the light of the foregoing, the restriction on broadcast of news by private FM broadcasters does not seem appropriate anymore. The Committee recommends that the restriction on news and current affairs should be lifted and the proportion of such programmes should be determined by the market mechanism. The committee strongly recommends that the AIR’s Code of conduct and the applicable industry codes should be strictly followed. The violation of any sort would result in the immediate revocation of the license.

Co-location, in this particular context, is the term used to mean locating the transmitting setups of various broadcasters of a particular city in the same premises and sharing the common tower. This term gathers more significance in the situations of lesser frequency separation between the channels allotted for the same city. The basic idea behind co-location is that the Effective Radiated Power (ERP) of all the channels would be nearly the same and since they are located at the same site, they will be attenuated similarly with the distance thus maintaining the same protection between the channels”.

In this context, following observations are made:

  1. Co-location in metro cities was mandatory in Phase-I. The objective was to increase the availability of frequencies by spacing them 400 kHz instead of 800 kHz.
  2. Most of the representations received by the Committee have opposed co-location due to the following reasons.
    1. For co-location purpose, it is necessary for private broadcasters to form a consortium.
    2. It is very difficult to form a consortium of private broadcasters competing with each other.
    3. If a Private broadcaster backs out, his share of cost on common infrastructure would have to be borne by the remaining ones.
    4. Private broadcasters have to bear substantial cost on studio-transmitter link as in co-location case, the studio setup would mostly be at a different location.
    5. There are number other operational difficulties.

In view of the above difficulties expressed by the private broadcasters, it is recommended that co-location may not be made mandatory in Phase-II”.

Reserve Entry Fees:

In Phase-I of liberalization of FM broadcasting the Government had divided the centers (cities where frequencies were offered to private bidders) in to five categories for the purposes of fixing the license fees: A+ (reserved license fees - Rs. 125 lacs), A (reserved license fees - Rs. 100 lacs), B (reserved license fees - Rs. 75 lacs), C (reserved license fees - Rs. 50 lacs) and D (reserved license fees - Rs. 20 lacs).[70] In Phase I some licenses were granted to the bidders at the reserve price as no other applicants were available.

Internationally (e.g. in case of spectrum allocation in Australia) the government is free to determine a reserve price for allocation of scarce resources like frequencies to prevent the market from grossly undervaluing the frequencies. The purpose of such reserve entry fees is not meant for revenue maximization but only to prevent gross undervaluation. By definition reserve entry fees should necessarily reflect the lowest permissible entry fees. As stated earlier, the entry fees would be independent of the annual revenue share to be paid to the Government by the licensee.

Therefore, the Committee recommends that the historic reserve price stipulated in Phase-I should be followed i.e. the reserve entry fees in Phase-II should be same as the reserve price in case of Phase-I.

However, it needs to be borne in mind that due to the difference in the bid process between Phase I and Phase II the implications of such reserve price would differ. Under the fixed license fees regime followed in Phase I the first year license fees was determined by an auction process and from second year onwards escalated at the compounded rate of 15%. Accordingly, a reserve price (say of Rs. 100 lakhs for A class cities) implied not only that the minimum license fees for the first year of the license would not be less than the reserve price but also that from the second year onwards of the term of the license, the same would escalate at the compounded rate of 15% (i.e. for A class cities the license fees would escalate as follows: - second year – Rs. 115 lakhs, third year – Rs. 1,32,25,000 and so on). On the other hand, the reserve price under the proposed regime for Phase II shall relate to only the one time entry fee as from the second year onwards of the term of the license, the license fees would be in the nature of revenue share only.

Chapter X
The Policy Framework

The Committee is of the view that in order to evolve a practicable solution for revitalizing the ailing radio industry in India, it is essential to closely study certain critical issues like foreign investment in the Indian radio sector, release of additional frequencies, and operation by commercial broadcasters of non-commercial stations that relate to culture and heritage of India.

Foreign Investment:

At present, the foreign investment regime in relation to the media sector is as follows:

  1. The Government has reviewed its print media policy and in June, 2002 (in partial modification of the Cabinet decision in 1955) allowed 26% FDI in news and current affairs publications. In the non-news category (scientific, technical etc.), FDI up to 74% is permitted.
  2. In case of DTH, total foreign equity up to 49% is permitted provided that FDI is not permitted to exceed 20%. It has been further clarified that the quantum represented by that proportion of the paid up equity share capital to the total issued equity capital of the Indian promoter company held or controlled by foreign investors through FDI/NRI/OCB investments is to form part of the above said FDI limit of 20%[71].
  3. In case of cable television foreign investment up to 49% (including both FDI as well as portfolio investment) is permitted.
  4. The guidelines on up-linking provide that: (a) the total foreign equity holding including NRI/ OCB/ PIO in the applicant company for setting up up-link hub/ teleports etc. is not permitted to exceed 49%; (b) in case of an applicant company desirous of up-linking news and current affairs channels from India, the foreign direct investment in the applicant company is not permitted to exceed 26% of the paid up equity. While calculating the 26% limit on FDI in the equity of the applicant company, the foreign holding component, if any, in the equity of the Indian shareholder companies of the applicant company will be duly factored in on a pro rata basis so as to arrive at the total foreign holding in the applicant company.[72] The equity held by the largest Indian shareholder group should be at least 51% of the equity excluding equity held by public sector banks and public financial institutions. (c) Television channels, which do not have any news and current affairs coverage are allowed to up-link irrespective of ownership, equity structure and management control; and (d) News agencies should be 100% owned by Indians with Indian management control.
  5. In the FM broadcasting sector, the licensee is required to be a company registered in India under the Companies Act, 1956. All shareholding is required to be Indian except for the limited portfolio investment by FIIs/ NRIs/ PIOs/ OCBs subject to such ceiling as may be decided from time to time (as on the date of this report, up to 20% portfolio investment is permitted). Company may not have any direct investment by foreign entities, NRIs and OCBs.

At the time of privatization of FM broadcasting the foreign investment policy in the media sector was on the conservative side. However, since then the media sector has witnessed rapid technological and policy developments and the Government has permitted provision of direct to home services and uplinking of channels from India with effect from 2000. The Government has framed a comparatively liberal regime for foreign investment in these sectors as has been noted above. Even the foreign investment policy in print media has undergone considerable revision.

In such a scenario it is difficult to appreciate the differential policy adopted towards FDI in the FM broadcasting sector in comparison with the other media sectors. Though there are built-in limitations on the use of electronic media because airwaves are public property, the nature of the media does not justify the highly restrictive FDI policy in respect of FM broadcasting especially in light of the prevailing FDI policy in case of other electronic media sectors like television and up-linking.

The Committee appreciates the fact that private FM broadcasting is in terrestrial medium and there are security considerations involved. Similar security concerns were expressed in relation to DTH services and up-linking, because of which, up-linking was not permitted from India and the Government had disallowed provision of services in Ku-band (DTH). However, after reconsidering its policy, on July 25, 2000 the Government permitted up-linking from India and the ban on provisions of DTH services in India was lifted.

The Committee recommends that the FDI policy in relation to the FM broadcasting sector, taking into account the security concerns, should be the same as in case of other electronic media sectors like up-linking/ DTH[73] where similar security concerns prevail. Both in case of the print media and up-linking sectors, a distinction has been drawn between news and non-news categories, and different FDI limits have been prescribed in respect of each category. The Committee favours a liberalization of the foreign investment regime for FM broadcasting.

The Committee recommends that the FDI policy as set out below be adopted in respect of FM broadcasting along with similar safeguards as are applicable in case of the existing FDI policy in respect of up-linking. We recommend that the following safeguards be introduced in the license agreement:

  1. FDI up to 26% should be permitted in FM broadcasting (news as well as entertainment).
  2. While calculating the 26% limit on FDI, the foreign holding component, if any, in the equity of the Indian shareholder companies of the licensee should be duly factored in on a pro rata basis to determine the total foreign holding in the licensee.[74] The equity held by the largest Indian shareholder group should be at least 51% of the equity excluding equity held by public sector banks and public financial institutions.
  3. 75% of the directors of the licensee, the Chief Executive Officer of the licensee and/or head of the channel; and all key executives and editorial staff of the channel must be resident Indians appointed by the licensee without any reference on or from any other company, for all news channels. For all entertainment channels exception to the above could be made for ‘people of Indian origin’ card holders / NRIs for the position of key executives and editorial staff. It should be obligatory on the part of the licensee to inform the Ministry before effecting any alteration in the foreign share holding pattern or in the shareholding of the largest Indian shareholder and/or in the CEO/ Board of Directors. Further, the licensee should be liable to intimate to the Ministry the details of any foreigners/ NRIs employed/engaged by it for a period exceeding 60(sixty) days. Further, there should be a bar on direct/ indirect outsourcing of content to foreign parties.
  4. The licensee should be required to make disclosures of any shareholders agreements, loan agreements and such other agreements that are finalized or proposed to be entered into. Subsequent changes to the said agreements should be permitted only with the prior approval of the Ministry. Further, the licensee should not be permitted to raise loans from foreign entities for all news channels.
  5. n light of the aforementioned changes to the FDI policy in respect of FM broadcasting, the existing licensees should be required to effect the necessary amendments to their Memorandum of Association and Articles of Association and relevant agreements no later than two months from the date of migration of their licenses from Phase I to Phase II.

Increase in Number of frequencies for Private FM Broadcasts:

Some of the industry players have submitted to the Committee that the Government should consider increasing the number of frequencies for tendering in Phase-II of the liberalization of FM broadcasting. It has been suggested that such release of additional FM frequencies may be through:

  1. Shift of IGNOU services from FM to MW/SW/AM bands and release of FM frequencies occupied.
  2. hrough migration of players to the new licensing regime and release of unutilized spectrum that is locked in Phase-I.
  3. Release of additional frequencies by the Government.

However, the experience in Phase I of liberalization of FM broadcasting has not been very encouraging and the release of a higher number of frequencies for tendering in Phase-II may adversely affect the valuation of the frequencies. Also the market may not be able to sustain a higher number of frequencies.

In light of the above the Committee is of the view that release of additional frequencies for Phase-II of liberalization of FM broadcasting should, inter alia, be through the migration of existing players to the Phase-II regime and consequent release of unutilised spectrum from Phase-I. The Committee strongly recommends that as the market develops and gathers the required momentum Government should endeavour to release, if available, additional frequencies in subsequent phases of liberalization so as to provide a boost for further growth of the market.

The Committee strongly deprecates the “squatting” on frequencies by some of the licensees to whom frequencies were awarded in Phase I of the liberalization of FM broadcasting. Non-operationalisation of frequencies would lead to loss of benefits of radio broadcast to the public and under the proposed revenue share mechanism would also entail loss of revenue to the Government. The Committee is of the view that non-operationalisation of the licenses to be issued in Phase-II should lead to forfeiture of the earnest money deposit and the advance license fees paid; revocation of the license and/or blacklisting of the defaulting licensees.

In Phase-I of liberalization of FM broadcasting one frequency in each of the forty cities was reserved for educational broadcast by IGNOU. However, so far IGNOU has been able to operationalise only 10 FM stations. It appears that due to limits on availability of funds IGNOU may not be in a position to operationalise all these frequencies. On account of paucity of spectrum it is not advisable to allocate FM frequencies for educational broadcasts.

The Committee is of the opinion that some other available frequencies may be more effectively utilized for the purposes of educational broadcasts by IGNOU. It has been brought to the notice of the Committee that during the last few years AIR is in the process of migrating high quality music programmes like Vividh Bharati from MW to FM. The possibility of availing these MW transmitters from AIR for the purposes of educational broadcasts by IGNOU requires serious consideration. This would address the issue of costs as IGNOU will not have to incur heavy expenditure on building broadcast infrastructure because AIR facilities could be used by IGNOU at a reasonable cost. This arrangement would lead to the best possible use of spectrum.

The aforementioned observations of the Committee are limited to allocation of normal FM frequencies to IGNOU and shall not apply to low power transmission facilities set up as community FM stations.

Non-Commercial Channels and Exclusive Niche Programmes:

One of the terms of reference to this Committee is to examine the possibility of having non-commercial, non-advertisement driven channels, to be operated/licensed by the same commercial broadcasters; terms & conditions thereof; consideration of whether type of content of these channels could include subjects related to the heritage and culture of India.

The Committee is of the view that forcing commercial broadcasters to take up additional non-commercial, non-advertisement driven channels is not a practical and workable policy. This is particularly so under the current conditions of depressed radio market and may defeat the very purpose of boosting the radio broadcast market through a Phase II licensing process.

One option could be the requirement of a 10% of the broadcast time dedicated to niche programmes related to culture or heritage of India, public health and education. However, such a compulsion introduces the problem of definition of content, as well as monitoring the 10% requirement. It also involves issues of timing within the 24 hours cycle for such programming. All of this will also require major Government intervention, monitoring and inspection for which there is no current structure or manpower within the Government.

Therefore, the Committee proposes an alternative, which is pragmatic and effective, without creating an inspectorate system. Out of the 4% revenue share that the Government would receive from the FM broadcasters, 1% of the revenue share should be set apart as a separate fund dedicated for the purpose of developing the non-commercial channels (related to culture and heritage of India, public health etc.). This channel will have the character of Public Broadcast Service of the United States or a similar channel available in the United Kingdom through the BBC. The resources which will accumulate in this fund, will be sought by private broadcasters to develop non-commercial channels and programmes in accordance with the directions of a Committee of eminent personalities of the nation. The funds should be disbursed through transparent rules and regulations framed for this purpose by the esteemed Committee. There would be a yearly audit of the broadcaster and the audit report would be presented to the Committee.

One of the objectives of privatisation was to ensure that there is some diversity in the content being broadcast by private broadcasters so as to offer better and wider choice to listeners. The objective was subsumed in the larger objective to ensure provision of high quality radio services offering education, information and entertainment and to make available quality programmes with a localized flavour in terms of content and relevance. It has been observed that all the FM channels are increasingly offering similar content (usually only Hindi film music) and sound alike. Niche channels (like classical music) have not been developed by the private FM broadcasters. The reason cited by industry players for such standardization of content is that advertising is the only source of revenue and advertisement revenue is determined by the audience of the particular channel. High license fees structure has forced the licensees to provide content that appeals to all sections across society rather than a special interest group in society. The proposed revenue sharing principles for licensing should result in some amount of broadening of the content in the commercial channels.

However, the Committee is of the view that it is possible to help the market process in the direction of development of niche channels. In this respect the Committee recommends the following :

In every city, certain frequencies should be reserved for niche channels to be tendered separately with a low reserve fee and low revenue share percentage. Detailed terms and conditions may be prescribed to ensure that such channels are exclusively developed for niche programming and no partial niche programming be allowed.

The Committee feels that such niche channels will be initially required in A+, A and B category towns, followed by its expansion in other cities in future. The Committee also strongly urges the Government to consider releasing additional frequencies to encourage such niche channels.

Foreign Satellite Broadcasters:

Foreign satellite broadcasts are digital (subscription/ free to air) radio services as opposed to the terrestrial FM free to air analog transmission. Therefore, for the purposes of competition analysis they perhaps constitute a separate market segment. Further, as the foreign satellite broadcasts are not using the frequencies that belong to the Government they are not subject to existing Indian regulations.

However, to take into account the cultural tradition of this country and the sensibilities of its vast and diverse populace the Committee is of the opinion that programme and advertisement codes in India should apply to foreign satellite broadcasters as well. Originally, the Cable Television Networks Regulation Act, 1995 also exempted the foreign satellite channels (free to air) from the applicability of programme and advertisement codes. However, the amendments to the said Act in 2000 deleted such exemptions.[75] In UK the foreign broadcasters are subject to the laws of UK indirectly as entities receiving or transmitting such programmes are made subject to regulation. The Government should also consider the regulation of Indian entities up-linking from abroad so as to ensure adherence to the programme and advertisement Codes.

Up-linking from abroad results in loss of foreign exchange to the Government. The Government should consider in future provision of digital satellite radio transmission and frame a suitable policy in relation to up-linking that will encourage Indian broadcast entities to up-link from India.

In so far as transmission of news programmes is concerned, in case of television news channels the up-linking guidelines have been revised and “live coverage” is not permitted unless the concerned broadcaster up-links from India. Similar regulation of radio channels, if desirable, may be considered.

However, effective regulation of foreign satellite broadcasters will require legislation and constitution of a regulator for the purposes.

Import Duty

In this sector, almost all the broadcasting equipments are imported and none of them are manufactured domestically. To make the economics more viable, the Committee suggests that the import duty on the broadcast equipment to brought in line with that of Telecom sector.

Code of Conduct

The Committee suggests that broadcast by private broadcasters must not, inter alia contain the following (as per the AIR code):

  • Criticism of friendly countries.
  • Attack on religion or communities.
  • Anything obscene or defamatory.
  • Incitement to violence or anything against maintenance of law and order.
  • Anything amounting to contempt of court.
  • Aspersions against the integrity of the President, Governors and Judiciary.
  • Attack on political party by name.
  • Anything showing disrespect to the Constitution or advocating change in the constitution by violent means, but advocating changes in the constitutional way should not be debarred.
  • AIR code and the advertising code to be looked at as per current scenario and appropriate changes to be made, if required.

Chapter XI
Migration Of Phase-I Licenses To The Revised
Phase-II Regime

In light of the license fee structure proposed for the licenses to be issued in Phase II of the liberalization of FM broadcasting, the rights, liabilities and obligations of the licensees under the Phase II licenses would be radically different from those of the licensees under the Phase I licenses. In such a scenario, it is vital to examine the consequences of such a change on the existing Phase I licenses and options that may be exercised in this regard.

A. Alternatives Available to the Government

The three broad alternatives that the Government may choose to exercise are: -

  1. Co-existence of both regimes : Permit Phase I licensees to continue operations under the terms and conditions of the License Agreement while issuing licenses on the revised terms and conditions in Phase II.
  2. Termination of the existing licenses : Terminate all the licenses that were awarded in Phase I. Require the Phase I licensees to surrender their licenses and bid afresh.
  3. Migration of Phase I licensees to Phase II : Migrate the Phase I licensees to Phase II and by necessary amendments to the License Agreement, ensure that the terms and conditions faced by Phase I licensees are the same as those faced by the fresh bidders in the Phase II regime.
    1. Co-existence of both regimes - The consequence of allowing the Phase I licensees to co-exist with the Phase II licensees would be that licensees under the existing License Agreements would, by and large, have to shut down operations. There are inherent differences between the existing licenses issued in Phase I and the proposed terms of the Phase II licenses. These include crucial terms such as the term of the license, the mechanism of determination of license fee (the fixed fee model being changed to revenue sharing model) etc. The introduction of these new terms in the Phase II licenses would result in differential terms prevailing in the same kind of business.. Therefore, this is not a desirable option.
    2. Termination of the existing licenses - Termination of the licenses of the defaulting licensees would entail take over of the network of the existing licensees by the Government upon payment of reasonable compensation to such licensees determined on the basis of current value of the assets and future earning capacity and such like factors. There would be endless controversy about the reasonableness of the compensation. Besides, payment of such compensation would be a strain on the exchequer. Moreover, termination of licenses and invocation of bank guarantees may lead to immediate and long drawn out litigation by current licensees. This option may work in case of defaulting licensees but in relation to those licensees that are complying with the terms of the License Agreement, it may be difficult to terminate the License Agreement on the grounds of changes in policy. Further, the uncertain outcome of time consuming litigation and the possibility, however remote, of some court granting interim relief are inter alia factors which discourage strict and rigid enforcement of the license conditions. Such strict enforcement of the license conditions, although legally permissible, would in many cases lead to serious financial losses, if not bankruptcy of large Indian companies already in the field.
      Further, any termination of the license would have an immediate dampening effect on the banks and financial institutions, both national and international, and could well result in lack of lenders confidence in the Indian FM broadcast industry. Any termination of the license would give rise to an event of default in the relevant lending documents. Banks which have furnished the BGs may not be able to recover the guaranteed sums from the principal debtors, viz., the licensees. Further, the persons whose licenses are terminated by the Government may not be able to raise the necessary financing as the banks would be unwilling to lend and therefore, such persons would not be able to participate in the next round.
    3. Migration of Phase I licensees to Phase II – The FM broadcast industry appears to be unviable under the Phase I licensing regime. It is clear that there is a need for a restructuring of the FM broadcast industry and the Phase I licenses. Migration of the Phase I licensees to Phase II license terms and conditions would ensure uniform implementation of the proposed policy of the Government. The decision to align the terms and conditions of the Phase I licensees with the Phase II licensees would grant some relief to the current licensees. However, the Phase I licensees should not be absolved from their current contractual obligations and from their obligation to pay arrears of license fee as well as other arrears, the rate of interest on the same and other dues. Their eligibility to avail the same terms and conditions as proposed to be offered to the Phase II licensees prospectively must be made subject to these conditions (as set forth later in this section) and should be in the interest of the public. Acceptance by the existing licensees of all the suggested conditions as a package for migration from Phase I to Phase II prospectively with effect from the date to be determined by the Government would adequately safeguard the interests of the Government, the lending community and the consumers.
      While it is necessary that the defaulters should not be seen to be rewarded for their defaults, it is also essential that any measures taken not be punitive but remedial in nature. Since the terms of reference of the Committee envisage recommending improvements to the terms and conditions of the existing licenses and measures for rehabilitation, such of the licensees as have contracted with the Government should be given an opportunity to cure all outstanding defaults up to the Cut off Date. The prospective change in policy should permit the revenue sharing principle to be applicable to old and new licensees alike and to have a non-discriminatory new regime or system universally applicable to persons similarly situated, for future operations. Such a process of migration of existing licensees to a new licensing regime has already been attempted in case of cellular telephony and has received judicial recognition.

B. Modalities of Migration

We are of the view that migration is the most viable alternative for the Phase I licensees vis-à-vis the proposed Phase II licensing structure. There are numerous issues that arise for consideration in this regard and hence there is a need to examine more closely the effect of such policy of migration on the various categories of licensees under Phase I. The legal basis for the migration of each of the categories and the conditions on which such migration should be allowed is discussed below.

C. Legal Regime Governing Migration

The migration of existing players to new regime will entail a variation in the terms of license. The power to vary the terms and conditions of Phase I licenses is vested in the Government by virtue of legislative provisions as well as the license conditions.

Section 7 (2) (g) of the Telegraph Act, 1885, being the Act under which the licenses were granted reads as follows: -

  1. “ The Central Government may, from time to time, by notification in the Official Gazette, make rules consistent with this Act for the conduct of all or any telegraphs established, maintained or worked by the Government or by the persons licensed under this Act
  2. Rules under this section may provide for all or any of the following among other matters, that is to say: -
    (g) the matters in connection with a transition from a system whereunder rights and obligations relating to the establishment, maintenance, working, repair, transfer or shifting of any telegraph line, apparatus or appliance for telegraphic communications attach by virtue of any agreement to a system whereunder such rights and obligations attach by virtue of rules made under this section…..”

It is advisable that appropriate rules may be framed expeditiously in this context by the Government and provision be made for migration of the Phase I licenses to the Phase II regime.

Additionally, the Government also has the power to amend the license conditions under the terms of the License Agreement. Clause 11 of the License Agreement reads as follows:

“The Licensor reserves its right to modify at any time the terms and conditions of this License including the schedules annexed hereto, if in the opinion of the Licensor, it is necessary or expedient to do so in public interest or on security considerations and reasons.”

Further, Clause 1.3 of Schedule C (Terms and Conditions) to the License Agreement reads as follows:

“The Licensor reserves the right to modify or incorporate new conditions at any time in the terms and conditions of this License which are considered necessary to do so in the public interest or for security considerations and reasons. No fresh document shall be required to be executed in the event of such change.”

In the light of the above, it is evident that the Government has the right to unilaterally amend any of the terms and conditions contained in the License Agreement provided it is necessary to do so in public interest. We have already stated that it is in the interests of the public if the proposed policy change in Phase II is applied uniformly. It will give further boost to the service of radio broadcast, which is a major vehicle of entertainment and information for the common masses. It will also avoid unnecessary litigation. Such a measure would greatly benefit existing licensees as well who are otherwise in danger of shutting down on account of their inability to pay the license fees.If they shut down, a service currently available to a section of the public will be extinguished. The Committee, therefore, proposes migration of the Phase I licensees to the Phase II regime by offering to the Phase I licensees the same terms and conditions as are proposed to be offered to the licensees in Phase- II.

D. Cut-off Date

For the purposes of migration to the new regime a date needs to be specified on and from which date the rights and obligations of licensees under the new regime should be made applicable to the players who migrate from Phase I. The Committee has decided that the cut off date should be the date on which this Committee was constituted, i.e. July 24th, 2003 (the “Cut-off Date”). Rights accrued and liabilities incurred up to the Cut–off Date should be governed by the old regime, for e.g., the migrating players should be liable to pay the original license fees that have become due till the Cut -off Date.

E. Eligibility

The Committee is of the considered opinion that the basic eligibility criteria that the Phase I players would have to fulfill for the purpose of migration to Phase II is the operationalisation of the license based on the frequency that was earmarked to them. This would also include licensees whose licenses have been deemed to have been operationalised provided such licensees operationalise the license within a stipulated deadline.

F. The Categories

Unsuccessful bidders or bidders who did not execute the License Agreement or did not pay the advance reserve license fees or did not provide the BG are not licensees. Accordingly, such persons would not be eligible for migration as such persons cannot be considered as players of Phase I.

Similarly, successful bidders who signed the License Agreement but did not apply to WPC for frequency allocation are also not entitled to migration as they were not issued a valid operational license by WPC. However, such persons should be eligible to participate as bidders for the licenses to be issued in Phase-II.

The Committee has consciously taken this view since persons who were unsuccessful during the bid process as well as those who have breached the terms of the Tender Documents and/or the License Agreement cannot be considered entitled to migration. The only concession is that such persons should be considered eligible to participate in the tendering of licenses in Phase - II.

  • Category A- Successful bidders that have an operational license but have failed to operationalise the frequency earmarked by WPC(as in case of licenses that are deemed to have been operationalised by the Government).
  • Category B-Successful bidders that operationalised the license but subsequently defaulted in the payment of the license fee. Based on the Cut-off Date, this category may be further sub-divided into the following:
    1. default in payment of licence fee before the Cut-off Date; and
    2. default in payment of licence fee post the Cut-off Date.
  • Category C- Successful bidders that operationalised the license, are up-to-date with the payment of the license fee.

Category A – This category of successful bidders signed the License Agreement but failed to operationalise the frequency earmarked by WPC. This includes cases wherein certain licenses have been deemed to have been operationalised. The bidders in this category should be directed to operationalise their licenses and ensure the roll out of services as soon as possible within a stipulated deadline in order to migrate to Phase II as they are otherwise in breach of license terms. This opportunity should be seen as a one-time concession only.

Category B – This category of successful bidders operationalised the license but subsequently defaulted in the payment of the license fees. In the event their License Agreements are still in force, the migration to the terms and conditions of the Phase II regime may be undertaken pursuant to an amendment of the License Agreement by the Government in accordance with Clause 11 of the License Agreement as already been laid down.

Such action by the Government may be contested on the ground that it allows the defaulting parties to benefit from the changed policy, and would be unfair to the other players of Phase I who are not in default. However, this may be countered on the ground that extension of the Phase II package to the players of Phase I would be applied uniformly. The preconditions of migration to Phase II for defaulters (given below) would clearly neutralize any advantages or disadvantages that the Phase I players may inadvertently be subject to.

Conditions – It is suggested that the Category B players be migrated to Phase II on the following additional pre-conditions: -
  1. The licensees who have defaulted in the payment of the license fee before the Cut-off Date may be given the option of paying the due license fee in accordance with the Phase I regime till the Cut-off Date and be migrated to Phase II on acceptance of the migration package and undertaking to pay (and secure the payment of) the revenue share in accordance with the Phase II conditions.
  2. Defaults in the payment of license fee in accordance with the Phase I regime after the Cut-off Date or license fee in relation to a period after the Cut-off Date are to be ignored. However, such licensees would have to pay the revenue share fee in accordance with the Phase-II conditions.

Further, it has been brought to the notice of the Committee that certain industry players who have operationalised their licenses and who have paid the necessary license fee have notified the Government that they would like to surrender their licenses due to non-viability of business. In light of the revised Phase II regime these players should be granted the option of retaining their licenses and migrate to Phase II in accordance with the stipulated conditions. This opportunity should be seen as a one-time concession only. However, if they choose to surrender the license granted to them in Phase I and bid afresh for Phase II under the new regime they may be permitted to do so.

Category C- Based on the discussion above, the integration of these licensees of Phase I into Phase II may be undertaken pursuant to an amendment of the License Agreement by the Government after acceptance of migration package by the licensee in accordance with Clause 11 of the License Agreement as discussed above.

Conditions – This category of licensees have paid all the license fees that were due from them under Phase I. For this category of licensees, the license fees already paid by them for the period post the Cut-off Date should be adjusted against the revenue share stipulated under the Phase II regime.

The amount that has already been paid by the players in this category in the form of original license fee before or at the Cut-off Date should be treated as the entry fee for the Phase II licensing regime.

G. Possible Litigation by Unsuccessful Bidders

The unsuccessful bidders of Phase I may challenge the proposed migration on the ground that there is a change in the license conditions as stated in the Tender Documents, and if they had known of the changes, now sought to be made in the license conditions, their bids would have been different.[76] Such a challenge is not likely to succeed because: -

  1. Under Phase I, FM licenses were granted and the License Agreements were entered into by the Government with the licensees after a tender was issued inviting bids from all qualified and eligible persons. The highest bids were accepted and thereafter the License Agreements were entered into with them. The unsuccessful bidders and the successful bidders competed on the same terms and conditions. The license fee which was to be paid was to be the same for all successful bidders in the same circles.
  2. Moreover, as stated in the previous section, Clause 11 of the License Agreement as well as Clause 1.3 of Schedule C specifically permit the licensor to modify any terms of the license, if considered in the interest of general public. The expression to ‘modify’ has been judicially construed to extend to making of significant alterations and is not confined to making minor changes.[77]
  3. The principles laid down by the Supreme Court in Ramana Shetty v. Airports Authority of India [78] are clearly distinguishable from the present factual matrix since what is presently being proposed is not a modification to or departure from the conditions of eligibility notified by the Government at the time of issuing the notices inviting tenders for Phase I licenses for FM broadcasting, but instead, an amendment to the terms and conditions to the existing Phase I licenses in order to align such Phase I licenses with the terms and conditions of the licenses proposed to be issued in Phase II.
  4. It is well settled that the Government has a right to change its policies from time to time according to the exigencies of the situation and in public interest. A prior policy or decision of the Government cannot be eternally binding. It is open to the Government to take a policy decision of changing the quantum and methodology of license fee to be paid by modification of the license conditions or by making statutory rules in that behalf, if it is considered that the interests of the general public and development of the radio industry will be better served in such a manner.
    The Supreme Court in State U.P. v Vijay Bahadur Singh[79] stated as follows: -
    • “….It cannot be disputed that the Government has the right to change its policy from time to time, according to the demands of the time and situation and in the public interest...”

In Delhi Science Forum v. Union of India[80], the court stated that: -

  • “…The question of awarding licenses and contracts does not depend merely on the competitive rates offered; several factors have to be taken into consideration by an expert body which is more familiar with the intricacies of that particular trade. While granting licenses a statutory authority or the body so constituted should have latitude to select the best offers on terms and conditions to be prescribed taking into account the economic and social interest of the nation. Unless any party aggrieved satisfies the court that the ultimate decision in respect of the selection has been vitiated, normally courts should be reluctant to interfere with the same…”[81]

In Krishan Kakkanth v. Govt. of Kerala[82], the Supreme Court was faced with the argument that the appointment of Approved Dealers was violative of constitutional guarantees. The Court opined that –

“…To ascertain unreasonableness and arbitrariness in the context of Article 14 of the Constitution, it is not necessary to enter upon any exercise for finding out the wisdom in the policy decision of the State Government. It is immaterial whether a better or more comprehensive policy decision could have been taken. It is equally immaterial if it can be demonstrated that the policy decision is unwise and is likely to defeat the purpose for which such decision has been taken. Unless the policy decision is demonstrably capricious or arbitrary and not informed by any reason whatsoever or it suffers from the vice of discrimination or infringes any statute or provisions of the Constitution, the policy decision cannot be struck down. It should be borne in mind that except for the limited purpose of testing a public policy in the context of illegality and unconstitutionality, courts should avoid embarking on [the] unchartered ocean of pubic policy…”
The position with regard to judicial interference in economic policies of the Government was re-emphasized recently in BALCO Employees Union v. Union of India[83]. The said case involved a challenge to privatization of Bharat Aluminium Co. Ltd. The court stated that –

  • “… unless any illegality is committed in the execution of the policy or the same is contrary to law or mala fide, a decision bringing about change cannot per se be interfered with by the court. It is neither within the domain of courts nor the scope of judicial review to embark upon an enquiry as to whether a particular public policy is wise or whether better public policy can be evolved. Nor are our Courts inclined to strike down a policy at the behest of a petitioner merely because it has been argued that a different policy would have been fairer or wiser or more scientific or more logical...”[84]

The Court also reiterated that –

  • “The policies of the Government ought not to remain static. With the change in economic climate, the wisdom and manner for the Government to run commercial ventures may require reconsideration. What may have been in the public interest at a point of time may no longer be so…”[85]

If the contention of the unsuccessful bidders were correct, it would mean that the Government is not permitted to change the license conditions at any point of time even though considerations of public interest may so require.

H. Penalty for Non- Operationalisation of Awarded Licenses

The Committee strongly recommends that after being awarded the license, it is mandatory for Licensee to operationalise the license within a maximum period of one year. If the licensee does not operationalise the license within one year from the date of the award, the Government, as a condition of the license, will forfeit the license and re-tendered it in public interest.

Chapter XII
Regulator For Playing Field[86]

As mentioned earlier, the Indian Telegraph Act, 1885 is the principal legislation governing broadcast in India. However, in light of the liberalization of the broadcast sector in India as well as technological changes it is widely felt that the existing legal framework needs to be re-examined.

The FM radio industry in India is presently in a nascent stage and as it develops, a number of legal and social issues (like content regulation, networking regulation etc.) as well as technological issues (like digital radio broadcasting (terrestrial/ satellite), subscription radio channels etc.) are likely to arise. The market forces may not always work in harmony and/or in the best interests of the public and therefore, appropriate regulatory intervention by an independent regulator would become necessary.

The Committee in this respect shares the views and the concerns of the Hon’ble Supreme Court as stated in the case of Secretary, Ministry of Information and Broadcasting v. Cricket Association of Bengal,[87] wherein it was observed that the Government should establish an independent autonomous public authority representative of all sections and interests in the society to control and regulate the use of airwaves.

The Convergence Bill presently being considered on enactment would replace a number of existing regulators (like TRAI) and laws (e.g. The Cable Television Network Regulation Act, 1995) across various sectors with a super regulator, namely the Convergence Commission. The Convergence Commission would also be empowered to regulate, inter alia, the broadcasting sector.

However, it is widely felt that a broadcast regulator is immediately required pending establishment of the Communication Commission of India, especially as the Group of Ministers on Telecom has decided to defer the implementation of the Convergence Bill. Such an interim regulator would be subsequently merged with the Communication Commission of India once the latter is established.

The Committee would like to clarify that the mandate of the broadcast regulator should be to create and maintain a regulatory environment that would foster market led growth rather than to supplant and substitute market forces through regulation. While enforcing the conditions of the license, when there is a market failure or distortion in the market, the regulator will take necessary action, including recommending to the Government appropriate modifications in the regulatory environment

A. Reasons for the Constitution of an Interim Regulator:

The existing regulatory framework is inadequate to do justice to a hitherto unregulated sector. Special expertise in the broadcasting sector is required to effectively address many of the regulatory concerns relating to the broadcast sector. Regulation of an industry requires: (i) considerable advocacy to create awareness of the issues involved, (ii) considerable expertise in the area involved and (iii) regulatory discipline in the industry. The Convergence Commission of India when finally set up would require expertise to appreciate the issues peculiar to broadcasting and the creation of an interim regulator for broadcast would help in generating the experience needed for the Convergence Commission of India to enable it to expeditiously, effectively and meaningfully regulate the broadcasting sector. For instance, in relation to the telecommunications sector the experience of TRAI and TDSAT would greatly assist the Convergence Commission of India in effectively regulating the said sector.

Establishing of an independent regulator for the broadcast sector is recommended since such a measure would: (i) provide a level playing field for private broadcasters vis- vis public broadcasters as well as inter se all broadcasters; (ii) enable balancing of competing preferences and inspire confidence in the private players; (iii) ensure the existence of a wide range of independent and autonomous means of communication making it possible to reflect the diversity of ideas and opinions; (iv) preserve the independence of media and prevent misuse of freedom of speech and expression (v) ensure better protection of the interest of the audience, citizens, industry players and other stakeholders; (vi) ensure access to the facilities at reasonable prices and on equitable and non-discriminatory terms; (vii) promote competition, particularly by safeguarding against monopoly, collusion and cartelisation.

The constitution of a regulator will also be in consonance with the approach adopted by the Government in respect of other sectors e.g.- electricity (CERC/SERC), telecom (TRAI & TDSAT), insurance (IRDA), major ports (TAMP) etc. The Broadcast Bill, 1997 also envisaged establishment of an independent regulator for television and radio broadcasting.

Radio regulators are common in various other jurisdictions as well e.g. Australia (Australian Broadcast Authority); Canada (Canadian Radio and Television Commission); Hong Kong (Broadcasting Authority); Korea (Central Radio Monitoring Office); Papua New Guinea (PANGTEL); Singapore (Singapore Broadcasting Authority); Thailand (National Broadcasting Corporation); US (Federal Communications Commission) and UK (Radio Authority).

A number of international instruments recognize the necessity of an exclusive and independent broadcast regulator. The UN Human Rights Committee has expressed concerns about restrictions on private broadcasting and lack of independence of regulatory authorities on a number of occasions in recent years. In its concluding observations on Lebanon’s Second Periodic Report, it recommended that an independent broadcasting licensing authority ought to be established with the power to examine broadcasting applications and to grant licenses in accordance with reasonable and objective criteria. The N Special Rapporteur on Freedom of Opinion and Expression has observed that there are several fundamental principles relating to broadcasting which, if promoted and respected, would enhance the right to seek, receive and impart information. These principles, inter alia, include an independent regulatory mechanism. The Declaration of Principles on Freedom of Expression (adopted by the African Commission on Human and People’ Rights) in paragraph 2 of Principle V (Private Broadcasting) states that “an independent regulatory body shall be responsible for issuing broadcasting licenses and for ensuring observance of the license conditions”. The European Council has passed a specific recommendation on the Independence and Functions of Regulatory Authorities for the Broadcasting Sector.[88]

B. Recommended Functions of The Interim Broadcast Regulator:

In light of the internationally and nationally recognized functions of a broadcast regulator and the proposed functions of the Convergence Commission, we recommend that the functions of the interim broadcast regulator should include the following:

  1. Recommendation to the Government in relation to grant of license to a particular person/entity, as well as tto be granted, to undertake broadcasting activity in India;
    The Broadcast Bill envisaged classification of licenses on a number of factors like medium (terrestrial/satellite); mode of delivery (direct to home) etc. Presently, the classification of licenses is based on activity (e.g. uplinking permission) as well as mode of delivery (DTH, HITS etc.). However, in future the basis of classification of licenses may require revision and the broadcast regulator should have the power to suggest such changes in the license regime to the Government.
  2. Monitoring and enforcement of the conditions of license/ registration and of programme, advertisement and industry codes;
    The Convergence Bill and the Broadcast Bill identify formulation of advertisement and programme codes as functions of the regulator proposed therein.
    However, the critical concern is not the formulation of regulations but instead, their enforcement. The codes exist in the form of rules to Cable Television Network Regulation Act, 1995 (applicable to DTH and up-linking under license terms) and industry codes e.g.-the the standard of practice of advertising agencies association, Doordarshan and AIR programme and advertisement codes etc.
    In Australia, the industry groups determine the code of practice applicable to their sector in consultation with Australian Broadcasting Authority (the broadcast regulator in Australia).[89] Similarly, in India the industry groups should determine the applicable codes of conduct in consultation with the broadcast regulator. The broadcast regulator would approve the codes after public consultation. These codes would then have statutory force and compliance with such codes would be ensured by the broadcast regulator. The broadcast regulator would also ensure compliance with the statutorily prescribed programme and advertisement codes.
  3. Collective consumer redressal in case of violation of license conditions or prescribed regulations by the broadcaster;
    As is the case in regulations prevalent in other sectors in India, the act establishing the broadcast regulator should leave unaffected remedies that a consumer may have under the Consumer Protection Act, 1986. Only collective consumer disputes or consumer class actions should be entertained by the broadcast regulator. The regulator should be empowered to conduct a suo motu enquiry.
  4. To ensure access to broadcast facilities at fair, reasonable and non-discriminatory (“FRND”) terms for consumers as well as other players in the industry;
    Issue relating to access to broadcast facilities at FRND terms are likely to arise in relation to introduction of conditional access devices (like set top boxes). Due to inherent problems in ex ante price control (i.e. determination of price upfront by the regulator) the market should determine the same. In U.K., OFTEL is entrusted with the task of tariff regulation of the broadcast sector and does not determine the prices at which services are offered upfront but monitors the prices arrived at by the market forces and intervenes only if complaints are received by it.[90]
    The broadcast regulator should review the terms of access (tariff and non-tariff) only if the industry players fail to arrive at fair, reasonable & mutually acceptable terms and /or if a complaint is brought to the regulator. However, to effectively perform such functions the regulator would have to be entrusted with the task of access oversight involving monitoring of access terms including price monitoring and reporting. This would introduce an element of transparency in the process and accountability would logically follow.
  5. Promotion of efficiency and competition in the broadcast sector;
    Section 21 of the Competition Act, 2002 provides for reference of certain issues to the Competition Commission for its opinion by a statutory authority like the broadcast regulator which may on receipt of the opinion of the Competition Commission on such issues pass such order as the statutory authority may deem fit. Therefore, there will be no overlap of functions vis-a vis Competition Commission.
  6. Adjudication of disputes inter se the sector players;
    The broadcast regulator should be entrusted with adjudicatory functions. An appellate body should also be constituted to which appeals from the decisions of the regulator could be preferred by aggrieved parties. Establishment of a broadcast regulator and an appellate body would ensure expeditious settlement of disputes in relation to the broadcast delivery services. The broadcast regulator should be entrusted with the task of deciding disputes between two or more service providers or between a service provider and a group of consumers. An aggrieved party may appeal against any direction, decision or order of the broadcast regulator to the appellate body. The proceedings of the broadcast regulator and the appellate body should be governed by principles of natural justice and interested parties should have a right to be heard.
  7. Formulation of quality of service standards;
  8. Recommendation to the Government for termination /suspension of the broadcasting license in case of non-compliance with the directions of the regulator or breach by the licensee of the license terms or the prescribed regulations;
  9. Such other functions as may be considered necessary to effectively discharge the aforementioned functions and objectives of the regulator;
    In future it may be considered desirable that apart from the functions prescribed above the regulator may be entrusted with the task of discharging certain other functions as well. To provide for such a scenario the act establishing the broadcast regulator should provide that the Government may, if it considers necessary, in public interest by notification in the official gazette delegate further functions to the broadcast regulator.

C. Recommended Powers of The Regulator
  1. Summoning and enforcing the attendance of any person and examining him on oath;
  2. Requiring the discovery and production of documents;
  3. Receiving evidence on affidavits;
  4. Issuing commission for the examination of witnesses or for production of documents;
  5. Dismissing a redressal complaint for default or deciding it ex parte;

Granting interim relief.

Making appropriate regulations.

We suggest to the Ministry of Information & Broadcasting that pending the creation of a Regulator (which is likely to take time, requiring Parliamentary approval), a non-statutory Committee be set up which has Terms of Reference similar to what the Regulator would have. (We understand that the formal creation of SEBI was preceeded by such a Committee)

Annexure I
Composition And The Terms Of Reference Of The Committee
No.212/94/2003-B(D)/FM
Ministry of Information & Broadcasting
‘A’ Wing, Shastri Bhawan, New Delhi – 110001

Dated: 24.07.2003

Order

The Government is pleased to constitute a “Committee” to make recommendations for Radio Broadcasting for Phase-II. The Committee will consist of the following:-

S/Shri
1. Amit Mitra (Chair Person) -FICCI
2. Dilip Chenoy -CII
3. Kiran Karnik -NASSCOM
4. Ameen Sayani -Radio Personality
5. P.K. Garg -WPC
6. K.M. Paul -AIR
7. K.R.P. Verma -BECIL
8. Shardul Shroff -Amarchand Mangaldas
9. Ms. Noreen Naqvi, DDG (Prog) -AIR
10. Ms. Mahua Pal, Director -Ministry of I & B
  1. The Committee may co-opt experts in the field as may be considered necessary from time to time, to obtain advice/inputs.
  2. The Terms of Reference of the Committee will, inter alia, include the following:-
    1. Determining a transparent and effective bidding / auction process to be adopted for allotment of frequencies.
    2. Assessment of a viable licensee fee structure for the various cities (one time entry fee, fixed license fees, revenue sharing etc.) to based on clearly defined parameters.
    3. Suggestions regarding extent of foreign equity participation in the private FM in order to make them economically more viable/sustainable while also keeping in mind regimes in other sectors and requirements of national security.
    4. Study the desirability and legal implications of making modifications in licensing regime of phase-I licensees should a different licensing regime be proposed for phase-II.
    5. Suggestions for improvement in content being broadcast and considering the inclusion of news.
    6. Examining the possibility of having non-commercial, non-advertisement driven channels, to be operated/licensed by the same commercial broadcasters; terms & conditions thereof; consideration of whether type of content of these channels could include subjects related to the heritage and culture of India.
    7. Recommendations for a code of conduct in programming matters and methods of strict enforcement for violations thereof.
    8. Assessment of whether collocation is necessary and desirable and if found otherwise, approach to be adopted in the metros, where collocated set ups involving huge investments stand operationalised.
    9. Determining the legal implications of the regime which may be proposed vis-à-vis the existing one.
    10. Formulating draft bidding documents and contract/license agreement.
    11. Other matters as may be referred to the Committee from time to time.
  3. The Members of the Committee would participate and contribute on a voluntary basis and no Travelling / Daily Allowance or other incidental expenses would be payable by the Government.
  4. The Committee will submit its report by the 30th September, 2003.

(Mahua Pal)
Director(BP&L)
Tele: 23381246

To,

All the members of the Committee

Annexure - II

Brief of the court cases

1. The first category of court cases are four Civil Writ Petitions which were filed in the year 2000 by eight Cos. The names of the companies are given in the Annexure-A. These companies were successful bidders who had deposited earnest money and 50% of the advance reserve license fee with the Govt. However, they had neither signed the license agreement nor given bank guarantee to the Govt and instead went to the Court asking for refund of EMD and reserve license fee with interest. Another Company having signed license agreement and given bank guarantee filed an intervention application and impleaded itself as a party in July 2001. The case is being defended by Shri Harish Salve, ASG and Shri Rajiv Sharma, Advocate. One case that of M/s Indigo was dismissed and in all other cases at the last hearing held on 27.5.02 the judgment had been reserved by the Hon’ble Judge. It is now one year and two months since the judgment was reserved.

2. In the second category, we had two cases of M/s Vertex Broadcasting Company (Bhopal, Indore and Visakhapatnam) who had filed a Civil Writ Petition in Feb 2002 and an Arbitration Petition in April 2002 in the Delhi High Court. Details are at Annexure-C. The Civil Writ Petition was for obtaining a stay on the encashment of Bank Guarantees. The bank guarantee had been invoked because the Company failed to pay the outstanding balance of the first year’s licence fee in respect of three non-metro stations by the due date. The case had since been dismissed on 23.5.2002 and the Bank Guarantee also stands encashed. The issue involved in the petition filed in April 2002 was that of appointment of an independent arbitrator. Ministry of Law appointed Shri B.A. Agarwal, Joint Secretary and Legal Advisor as the Arbitrator. Ministry of I & B furnished the relevant documents required by Arbitrator and replied to the queries raised by Shri B.A.Agarwal.

Order dated 27.03.2003 passed by Hon’ble Delhi High Court in the matter of A.A No.94/02 - Vertex Broadcasting Co. Ltd. V/s UOI. It is stated in the order that the respondent’s action in appointing the Arbitrator after five months of the letter of invocation of the petitioner is illegal as the respondent has forfeited its right to appoint an arbitrator after the petitioner had filed the instant petition under Section 11 of the Act arising out of the failure of the respondent to act pursuant to the notice dated 27.02.2000 invoking the arbitration clause. Petition is allowed. Hon’ble Mr. Justice C.L. Choudhary, a retired Judge of this Court is appointed Arbitrator to adjudicate the disputes raised in the petition. On 10.07.03 Claimant submitted the copy of Claim before Arbitrator and Hon’ble Arbitrator fixed the date for hearing on 29.08.03.

3. In the third category, we had two arbitration petitions of M/s Music Broadcast Pvt Ltd ( Nagpur and Patna)and M/s Entertainment Network India Ltd ( Lucknow and Hyderabad) praying for restraining the respondent from encashing the Bank Guarantees. It is observed that these cases were filed in Jan’02. Shri R.V. Desai is the Special Counsel and Shri S.M. Shah is the Senior Counsel defending the cases on behalf of the respondent. These two cases basically relate to withdrawal by the companies from non-metro stations for which they were licensed, for various reasons that are purely commercial and internal to the companies.

The main plea of M/s MBPL was

  • The Company argued that having commenced operations in Bangalore, the actual costs involved in running operations particularly in non-metro cities are beyond what was contemplated by parties making the entire operation of FM stations in Nagpur and Patna unviable both commercially as well as economically. Moreover, in view of the general economic downturn and recent events, which have made a significant adverse impact on businesses worldwide, they had re-evaluated their operations and business projections in various locations.
  • The Petitioner also stated that its revenue models were based on the assumption that all the stations in respect of which it had been granted licences would be operational at about the same time. However, due to the delay by the respondent in granting the final operational licence and the consequent non-operationalisation of the radio stations at the two metro cities of Delhi and Mumbai, the Petitioner’s revenue model was severely affected and the Petitioner incurred substantial losses. Therefore it was not economically and commercially viable for them to commence operations at the stated levels of license fees in the two centers of Nagpur and Patna.
  • The Petitioners further stated that an operational license has not been granted.
    The main plea of M/s ENIL was
  • The Company argued that because of the failure of Ministry of Information and Broadcasting to grant necessary interim permissions for commencing individual transmissions to the Petitioner for the four metros, the Petitioner was unable to commence FM broadcasting in the said metros.
  • They have further argued that invocation of Bank Guarantee would be contrary to the terms of the License Agreement as well as the terms of the Bank Guarantee since (i) for no fault of the Petitioner, the Petitioner was unable to commence metro operations making it impossible for the Petitioner to commence the FM broadcasting in the non Metrols of Hyderabad and Lucknow and (ii) the Bank Guarantee comes into operation only on the grant of license and (iii) there can be no breach of the license in absence of license having been granted.

In these cases, hearings had been held and when the matter was ready for the last stage of hearing, where the Honourable High Court at Mumbai decided to club them along with four cases of M/s Mid Day Radio North India, M/s Mid Day Broadcasting South M/s Millennium Delhi Broadcast Ltd and M/s Millennium Chennai Broadcast Ltd. detailed in para 4. Hon’ble Justice F.I.Rebello of High Court of Bombay. He delivered the judgment in 6 Arbitration Petitions on 26.11.2002. The Main order had been passed in Arbitration Petition No. 75 of 2002 filed by M/s ENIL.

4. In the fourth category of cases are four Arbitration Petitions filed by M/s Mid Day Radio North India, M/s Mid Day Broadcasting South M/s Millennium Delhi Broadcast Ltd and M/s Millennium Chennai Broadcast, Ltd. Details are at Annexure-D. These petitions had been filed on 28.8.02 and relate to non-payment of dues in respect of the metro cities of Delhi and Chennai. These cases had also been filed in the Mumbai High Court. The petitioners had mainly pleaded for restraining the respondent from encashing the Bank Guarantee. It is observed that the companies had been given extensions of time till 29 August’02 to operationalise their colocated set ups and also pay the dues. For various reasons, including that of the sudden withdrawal of the integrator, the companies were unable to operationalise. On examination of all the facts of the case, the Ministry permitted them to pay the dues and operationalise at the earliest. While seven companies had done so, these four companies had failed to comply and hence action for invocation of BGs had been taken. These cases were clubbed with earlier cases referred to in para 3 also and judgment in 6 Arbitration Petitions was delivered the on 26.11.2002 by Hon’ble High Court of Bombay. The Main order had been passed in Arbitration Petition No. 75 of 2002 filed by M/s ENIL “Invocation of the respondents of the Bank Guarantee is clearly without jurisdiction and will cause irretrievable injustice to the petitioners if it is allowed to be encashed. At the same time since there is an arbitration clause and as the petitioners have invoked the arbitration clause, interest of the respondents will also be protected. Petitioners keep alive the Bank Guarantee until passing of the award and a period of three months thereafter.”. Appeals have been filed in the Bombay High Court at Mumbai.

In the matter of all the six cases, the Standing Counsel has been advised to file an appeal. Branch Secretariat, Mumbai opined that “ .. the Judgement Dt. 26-11-2002 is arbitrary, unreasonable and not maintainable in law, and which required to be challenged before the Division Bench, High Court of Judicature at Bombay.” We have referred the matter to Ministry of Law. The Ministry of Law & Justice, Deptt. Of Legal Affairs advised that “ The High Court has not taken into consideration the contention of the Government that the final operational licence was to be granted by the WPC only after the licencee had applied for the same to the WPC, after completion of the formalities as detailed in the Licence Agreement. It seems that the petitioners themselves had not applied for the Operational Licence to the WPC and thus had not complied with their part of the obligation and the Government cannot be blamed for their failure.

The Bank Guarantees in the instant cases seem to be unconditional and decision of the High Court respondent is without jurisdiction, is against the settled principles of law in the matter of grant of injunction by the Courts against the invocation of the B.G. We agree with the advice given by the Bombay Branch Secretariat of this Ministry, that the impugned order be challenged by filing Writ Appeals before a Division Bench of the Bombay High Court.”

5. The fifth category relates to M/s Vertex Broadcasting who had filed a title suit in Kolkatta Distt Court on 2 Sept.02. We had informed the Counsel that the Bank Guarantee of the said Company had been encashed on 31/8/02. Company moved another application on 09.09.2002 before the Ld. District Judge at Alipore under section 151 of the code of civil procedure,1908. The main plea was to pass an order restraining the respondents from encashing “Cash Order” issued against Bank Guarantee. The Pay Order in the meantime was encashed on 28.09.2002.

Company filed the petition AST No.1346 of 2002 in the High Court at Calcutta, under Article 227 of Constitution of India and Section 115 of the Code of of Civil Procedure, 1908 and in the matter of an order dated 4th October 2002 passed by Shri S.P.Mitra, Ld. District Judge, Alipore in Title Suit No. 141 of 2002. The prayer now was slightly different, in that the Company had pleaded for restraining the Ministry from withholding the money received by encashing the bank guarantee and to forth with refund the said sum of Rs.100 lacs and restraining the bank from dealing with the shares and/or other securities pledged by petitioner with the bank. Next date of hearing yet not confirmed.

6. The sixth category relates to M/s Millenium Mumbai Broadcast Ltd, who paid the dues of first year and operationalised their station at Mumbai but failed to deposit the 2nd year’s licence fees. Therefore their licence have been revoked and Bank Guarantee encashed. M/s Millenium Mumbai Broadcast Ltd filed the Petition in Delhi High Court. The plea was that termination 30 days notice is requiredto be served after affording a reasonable opportunity of hearing. However Ministry has taken action under Article 1.2, Schedule C,wherein if the licencee does not pay the licence fee within the prescribed period, the Licence can be revoked without giving any notice. On 2nd July 2003 , Hon’ble Delhi High Court passed an interim order “ However it is made clear that from the amount recovered through the bank guarantee the respondents would be permitted to appropriate the sum towards licence fees for the period of broadcasting as per the interim orders. Accordingly there shall not be any impedient to the broadcast of the petitioner until further orders of this Court.”. We are in the process of filing the Counter.

Annexure-III

International Experience
Country Categories of licenses – whether geographically defined
Remarks
Foreign Investment rules Period of license Method of granting license – whether auction is used?
Remarks
Regulatory Regime Content Regulation
Remarks
Argentina ü
Licenses defined on the basis of geographic reach
Foreign Investment not allows 8 years ü
In case applications for stations with power over one kilowatt exceed spectrum available licenses
COMFER grants licenses
Canada X
7 Categories of radio stations : public, commercial, native, community, campus, digital & ethnic
Foreign ownership limit on Holding Cos: 33% & At the operating level: 20% Thus effectively : 46.7% an Operating Co. 7 years maximum facilities to be set up within 2 years of grant of license ü
In case applications exceed spectrum available, licenses are auctioned. The license fee otherwise depends on revenue earned – in certain cases it may be nil
Canadian Radio TV and Telecommunications Commission governs Telecom & Broadcast industries Code of ethics specified
Malaysia X
Licenses defined under the new convergence regime, and not base on geographies or usage but are now based on technologies used
Foreign investment allowed for content production but not for operating the station X
There is shortage of spectrum and the government is not granting any licenses for radio broadcasting currently
Malaysian Communication & Multimedia Commission (MCMC) grants licenses and specifies content codes This authority was created after the country adopted a convergence regime in 1998 ü
Specified to prevent social unrest – not prohibitive to any particular license
Philippines X In case of a company : maximum 40% foreign shareholding allowed. Individual owner has to be a Filipino Maximum 3 years ü
In case applications exceed spectrum available, licenses are auctioned
For operation of license, franchise from Philippines legislature and a license from National Telecommunications Commission is required Self Regulation – codes defined by KBP
South Africa Limited by ownership rules Maximum 20% Licenses are auctioned Independent Broadcasting Authority governs radio industry Codes defined to include South African programming
United Kingdom ü
Licenses defined on the basis of usage and geographical reach
Non EEA nationals not permitted to hold radio broadcasting licenses but can hold radio programming license National : 8 years
Local : 8 years
STRSL: 28 days
LTRSL : 5 years
C&S L : 5 years
Digital Multiplex : 12 years
Sound programming service : indefinite ASL : 8 years
ü
National Service and FM (ASL) licenses are auctioned
Radio Authority is the regulating body: grants licenses and specifies codes Codes specified, but not codes apply to Additional FM and programme codes don’t apply to RSL
USA Restriction on number of licenses on the bais of ownership rules Maximum 20% Not defined ü
In case applications exceed spectrum available, licenses are auctioned
Media bureau of FCC grants licenses No codes defined. However, court decides on the basis of complaints received

Section - I
EC Recommendations on Broadcast Licenses

A. Rec (2000) 23 on Broadcast Regulator:

The European Commission Recommendation [Rec (2000) 23] of The Committee of Ministers to Member States on the Independence and Functions of Regulatory Authorities for the Broadcasting Sector (Adopted by the Committee of Ministers on 20 December 2000 at the 735th meeting of the Ministers’ Deputies) envisages as one of the function of an exclusive Broadcast regulator granting of broadcasting licenses. It provides that allocation of frequencies should be through a tender process. In this respect the guidelines on granting of licenses provide that:

“One of the essential tasks of regulatory authorities in the broadcasting sector is normally the granting of broadcasting licenses. The basic conditions and criteria governing the granting and renewal of broadcasting licenses should be clearly defined in the law. The regulations governing the broadcasting licensing procedure should be clear and precise and should be applied in an open, transparent and impartial manner. The decisions made by the regulatory authorities in this context should be subject to adequate publicity. Regulatory authorities in the broadcasting sector should be involved in the process of planning the range of national frequencies allocated to broadcasting services. They should have the power to authorise broadcasters to provide programme services on frequencies allocated to broadcasting. This does not have a bearing on the allocation of frequencies to transmission network operators under telecommunications legislation.

Once a list of frequencies has been drawn up, a call for tenders should be made public in appropriate ways by regulatory authorities. Calls for tender should define a number of specifications, such as type of service, minimum duration of programmes, geographical coverage, type of funding, any licensing fees and, as far as necessary for those tenders, technical parameters to be met by the applicants. Given the general interest involved, member States may follow different procedures for allocating broadcasting frequencies to public service broadcasters. Calls for tender should also specify the content of the license application and the documents to be submitted by candidates. In particular, candidates should indicate their company’s structure, owners and capital, and the content and duration of the programmes they are proposing.”

In relation to sanction the Recommendation provides that “When a broadcaster fails to respect the law or the conditions specified in his license, the regulatory authorities should have the power to impose sanctions, in accordance with the law. A range of sanctions …prescribed by law should be available, starting with a warning. Sanctions should be proportionate and should not be decided upon until the broadcaster in question has been given an opportunity to be heard. All sanctions should also be open to review by the competent jurisdictions according to national law.”

The following observations in the explanatory memoranda on the Recommendation are important:

“The term ‘license’ should be understood in its generic sense in practice, licenses may be termed ‘contracts’, ‘conventions’ or ‘agreements’. The Recommendation stipulates that regulatory authorities should be empowered, through the granting of licenses, to authorise broadcasters to provide programme services on frequencies allocated to broadcasting. This does not have a bearing on the allocation of frequencies to transmission network operators under telecommunications legislation. Even though the continuing development of digital technology promises a spectacular increase in the number of channels, there is, for the time being, a relative shortage of frequencies that may be used for broadcasting, and it is therefore necessary in the public interest to allocate them to the operators offering the best service. In addition, the granting of licenses makes it possible to ensure that broadcasters satisfy certain public interest objectives such as the protection of minors and the guarantee of pluralism.

he power to grant licenses may be exercised in respect of many different types of operator, on the bases of type of service (radio or television), means of transmission/reception (terrestrial broadcast networks, satellite or cable), type of frequency (analogue or digital) or geographical coverage (national, regional or local). The Recommendation does not seek to tell the member States specifically which types of service should be subject to authorisation, as opposed simply to declaration. At the same time, it is stipulated that the licensing procedure should be clear and precise and should be applied in an open, transparent and impartial manner, and that the decisions taken by regulatory authorities in this respect should be subject to adequate publicity.

The selection of tenders for licenses is a procedure of variable length, with a series of distinct phases. Once a list of frequencies has been drawn up, a call for tenders should be issued. In the interests of openness and free competition, it is recommended that the call for tenders be published in all appropriate ways, for example in official gazettes, the press etc. The call for tenders should specify a number of criteria, such as the type of service being offered for exploitation, the content and minimum duration of the programmes to be provided, the geographical coverage of the service, the type of funding, any licensing fees, and the technical parameters to be respected. It should also specify the content of the license application and the documents to be submitted when tendering.

In accordance with Recommendation No R (94) 13 on measures to promote media transparency, it is recommended that candidates tendering should indicate their company’s structure, owners and capital. The call for tenders should also stipulate the deadline for the submission of applications and the date by which they will be considered. The next phase is the consideration and selection of candidates from the tenders submitted. The tender documents should describe clearly how it is planned to run the service, focusing in particular on the economic and technical aspects and the proposed content.

The Recommendation does not stipulate what criteria regulatory authorities should use in their selection from a number of competing tenders, it being incumbent on each State to determine the criteria most appropriate to its own circumstances, although the choice should be guided primarily by the content of the tenders. In general, the successful candidates will then sign a contract setting out the key information contained in the tender documents they submitted, and the commitments that they have made and must fulfill for as long as they hold the license. In order to minimise the possibility of arbitrary decision-making, the Recommendation provides that the regulations governing the granting of licenses should be defined and applied in an open and transparent manner. For the same reason, the conditions and criteria governing the granting and renewal of licenses should be clearly defined in the law and/or by the regulatory authority, and regulatory authorities’ decisions on the granting of licenses should be published in all appropriate ways. The Recommendation requires a further degree of openness by stipulating that the licensing procedure should be open to public scrutiny - a requirement which does not preclude consideration of the tenders behind closed doors in order to ensure fair competition by avoiding any external pressure, and to keep confidential certain information about the candidates contained in the tender documents (see, on this point, Recommendation No R (94) 13 on measures to promote media transparency, and in particular Guideline No 1 thereof).”

B. Recommendation R (94) 13 on Transparency in Media[91]:

Media pluralism and diversity are essential for the functioning of a democratic society and media concentrations at the national and international levels can have not only positive but also harmful effects on media pluralism and diversity which may justify action by governments. Media transparency is necessary to enable members of the public to form an opinion on the value which they should give to the information, ideas and opinions disseminated by the media. There is a need to safeguard the rights and legitimate interests of all parties subject to transparency obligations.

The regulation of media concentrations presupposes that the competent services or authorities have information which enables them to know the reality of media ownership structures and, in addition, to identify third parties who might exercise an influence on their independence.

Access by the public to information on the media:

Members of the public should have access on an equitable and impartial basis to certain basic information on the media so as to enable them to form an opinion on the value to be given to information, ideas and opinions disseminated by the media Particular attention should be given to the need to reconcile the requirement of transparency with the principle of freedom of trade and industry as well as with the requirements of data protection, commercial secrecy, the confidentiality of the sources of information of the media and editorial secrecy.

Disclosure of information:

Applicants for the operation of a broadcasting service should provide information which is fairly wide-ranging in its scope and quite precise in its content. The information which may be subject to disclosure may be schematically grouped into the following categories:

  1. Information concerning the persons or bodies participating in the structure which is to operate the service and on the nature and the extent of the respective participation of these persons or bodies in the structure concerned;
  2. information on the nature and the extent of the interests held by the above persons and bodies in other media or in media enterprises, even in other economic sectors;
  3. information on other persons or bodies likely to exercise a significant influence on the programming policy of this service by the provision of certain kinds of resources, the nature of which should be clearly specified in the licensing procedures, to the service or to the persons or bodies involved in the latter's operations.
  4. information aimed at accounting for changes which have occurred in the course of the operation of the service in the aforementioned categories of information;
  5. information relating to other categories of data linked to the operation of the service, once the latter has started up.

Section - II
Australian Commercial Broad casting Services[92]

A. The Broadcasting Services Act, 1992

According to Section 14 of the Broadcasting Services Act Commercial Broadcasting License are those that are made available free to the general public; usually funded by advertising revenue; and are operated for profit or as part of a profit-making enterprise.

The ABA invites applications for licenses for new commercial services by publishing advertisements for available licenses in the Australian and in a newspaper with a local circulation where a license is available. The information package provides a detailed explanation of how to apply for a license, technical information about the available licenses and the reserve price of available licenses. The information package also includes all of the forms which must be completed by applicants.

Licenses allocated since 30 April 1998 are allocated under the Commercial Broadcasting License Allocation Determination No. 1 of 1998 (framed under Sec. 36 (1) of the Broadcasting Act). If there is only one applicant for a license no license allocation exercise will be held. The applicant for the license will be allocated the license for the reserve price, subject to the requirements of the section 36 determination, including payment of the price of the license, being met and the applicant being judged as a suitable applicant.

License Allocation Exercise:

If there is more than one application for a license, the license will be offered at an auction-style license allocation exercise to be held with 10 days notice. The ABA generally conducts two rounds of license allocation exercises each year: one in the first half of the year and one in the second half of the year. However ABA may conduct more or fewer rounds of license allocation exercises, depending on the number of licenses available for allocation.

The main features of the aforementioned processes are as follows:

  • An indemnity by the applicant and the director against any loss or costs that ABA may suffer due to an act/default/omission of the applicant or his agents–Reg. 4(6).
  • The Applicant may apply for more than one license.
  • Application fees (currently $200) by way of bank cheque.
  • ABA may set a reserve price.
  • In case of allocation exercise, as soon as exercise is complete one must pay a deposit of 10%.
  • Balance of the price (bid-total deposits) to be paid between 45-47 days of notice/date of license allocation exercise through electronic transfer to designated accounts.
  • Allocation of license only after payment of balance price.

B. License Fees for Commercial Radio Broadcast:

Under the Radio License Fees Act, 1964 (Section 5) the licensee pays to the Commonwealth, by way of tax in respect of the license, fees a fee of an amount equal to the relevant percentage of the gross earnings (Gross earnings, in respect of a license in respect of a period, means the gross earnings of the licensee during that period from the broadcasting, by the service provided under the license, of advertisements or other material) in respect of the license for commercial radio broadcast.

The relevant percentage, in relation to the gross earnings in respect of a license during a period, means (Section 6):

  1. where those gross earnings are less than $5,000,000—the percentage ascertained in accordance with the formula:
  2. where those gross earnings are not less than $5,000,000 but are less than $6,000,000—the percentage ascertained in accordance with the formula:
  3. where those gross earnings are not less than $6,000,000 but are less than $7,000,000—the percentage ascertained in accordance with the formula:
  4. where those gross earnings are not less than $7,000,000 but are less than $10,000,000—the percentage ascertained in accordance with the formula:
  5. where those gross earnings are not less than $10,000,000—whichever is the lesser of 3.25% or the percentage ascertained in accordance with the formula:

Where A is the number of dollars in those gross earnings.

Subsidiary and Group Earnings:

Where the ABA is of the opinion that:

  1. An amount, or part of an amount, earned during any period by a person other than a licensee would, if the licensee and that person were the same person, form part of the gross earnings in respect of the license in respect of that period for the purposes of this Act; and
  2. A relationship exists between the licensee and the other person (whether by reason of any shareholding or of any agreement or arrangement, or for any other reason) of such a kind that the amount or the part of the amount, as the case may be, should, for the purposes of this Act, be treated as part of the gross earnings in respect of the license in respect of that period;

It may direct that the amount or the part of the amount, as the case may be, shall be so treated (Section 7).

C. Spectrum Licenses under Radio Communications Act

Under Section 46 of the Radio Communications Act, 1992 to operate a radio communications device (including radio communications transmitter and receiver under Section 7 of the Act) one requires a spectrum/class/apparatus license. Spectrum Licenses are licenses which authorise use of parts of spectrum. Under the Radio Communications Act, 1992 broadcasting services bands license (and broadcasting station) have the same meaning as assigned under the Broadcasting Services Act, 1992 i.e. a commercial radio/television license or a community license that uses the broadcasting services bands (determined under Section 31 of the Radio communications Act as being primarily for broadcasting purposes) for broadcasting services. The Broadcasting Services Band are determined by the Minister in consultation with ABA and ACA; or may be referred by him to ABA for planning under Part III of the Broadcasting Services Act, 1992 (Section 31).

Under section 60 of the Radio Communications Act, 1992 (Chapter 3 part 3.2 Division 1, Sub-division B) the ACA must determine, in writing, the procedures (including the type, advertising of the procedure, entry fees, reserve price, deposits payable by successful bidders and methods of payment for licenses) to be applied in allocating spectrum licenses: (a) by auction; or (b) by tender; or (c) by allocation for a pre‑determined price or a negotiated price.

Procedures may (a) impose limits on the aggregate of the parts of the spectrum that, as a result of the allocation of spectrum licenses under this Subdivision, may be used by: (i) any one person; or (ii) a specified person; or (b) impose limits on the aggregate of the parts of the spectrum that, as a result of the allocation of spectrum licenses under this Subdivision, may, in total, be used by the members of a specified group of persons.

After a marketing plan has been prepared, the ACA may prepare drafts of spectrum licenses that are to be allocated in accordance with the marketing plan. Drafts of spectrum licenses so prepared need not be complete, but each must contain a draft of its core conditions.

A spectrum license comes into force on the day on which it is issued or on such later day as is specified in the license for the purpose. Subject to Division 3, a spectrum license remains in force for the period specified in the license. The license may specify any period up to 15 years.

Core Conditions of Spectrum Licenses

A spectrum license must include the following core conditions specifying:

  1. The part or parts of the spectrum in which operation of radio communications devices is authorised under the license;
  2. The maximum permitted level of radio emission, in parts of the spectrum outside such a part, that may be caused by operation of radio communications devices under the license;
  3. The area within which operation of radio communications devices is authorised under the license;
  4. The maximum permitted level of radio emission, outside that area, that may be caused by operation of radio communications devices under the license.
  5. A spectrum license may also include a core condition specifying the periods (including times during each day or times during particular days of each week) during which operation of radio communications devices is authorised under the license.

Section - III
Radio Licensing in Canada

The Canadian Radio Television and Telecommunications Act establishes the CRTC as the regulator for Broadcast and telecommunication services (Section 12). The objects and powers of the Commission are as set out in the Broadcasting Act, 1991. Section 5 of the Broadcasting Act provides that subject to the act and the Radio Communications Act and directions issued by the Governor in Council CRTC shall regulate and supervise all aspects of Canadian Broadcasting System. The objectives of the Canadian Broadcasting system is set out in Section 3 of the Act and the Regulatory policy in Section 5 (2). General powers for licensing (determination of procedure, issue, renewal, suspension, revocation etc.) are set out in Sections 10, 21, 22 etc. Further, CRTC may under Section 10 through regulations regulate the broadcast time and content. The issues of content, media ownership and concentration etc. are dealt with at length in the Radio Regulations, 1986.

A. Factors Relevant to the Evaluation of Applications[93]

Quality of the application

In assessing this factor, the Commission will evaluate commitments in a number of areas. For example, the Commission will assess the overall business plan provided by the applicant, which includes the proposed format. Further, depending on the circumstances, it may be relevant to assess Canadian content commitments and if applicable, commitments related to the level of French-language vocal music. The manner in which applicants intend to reflect their local community, including the community's diversity and distinctiveness, remains important. The Commission will therefore examine local programming proposals and the benefits that the applicant will bring to the community.

The new Commercial Radio Policy (April, 1998) places emphasis on Canadian Talent Development (“CTD”). The Commission considers that the applicant's CTD proposals are important elements when the quality of the application is assessed.

Diversity of News Voices in the Market

This factor relates to concerns regarding concentration of ownership and cross media ownership. The Commission has stated in this regard that it seeks to strike a balance between its concerns for preserving a diversity of news voices in a market, and the benefits of permitting increased consolidation of ownership within the radio industry.

Market Impact

The possibility that licensing too many stations in a market could lead to a reduction in the quality of service to the local community remains of concern to the Commission. The economic condition of the market and the likely financial impact of the proposed station upon existing stations in the market will therefore be relevant. Competitive state of the market. Since the new radio policy permits one party to own more radio stations in a market than was the case under the previous policy, the new ownership limits increase the possibility of competitive imbalance in a radio markets. This factor will be relevant when evaluating applications for new commercial radio stations under the policy.

The relative importance of each of the aforementioned factors varies in each case depending on the specific circumstances of the market concerned.

B. The Application:

The Application form is a fairly detailed documents that elicits the following information from the applicant company:

Control:

Complete list of shareholders of the applicant company in particular each corporation or other legal entity or shareholders holding, directly or indirectly, 20% or more of the voting shares and/or votes (participating and common shares) of the applicant alongwith shareholder voting trust agreement etc.[94] Funds and sources of fund and commitments on funds.

Cross-Media Ownership Regulation:

Industry consolidation and Cross-media ownership declaration including that of directors, corporation that directly/indirectly controls the applicant or shareholders holding 20% or more of the voting shares and/or votes (participating and common shares) of the applicant[95]

Financial Evaluation of the Project

Details of financial operation for the proposed undertaking for each 12 month period providing details of revenue (after agency commission; operating expeses; non-operating expenses. Basis of revenue calculation including average commercial minutes expected to be sold/hour; reach (audience), capital cost and facilities etc.[96]

Content Regulation:

The details of content of programme and their regulation is ensured through Section 7 of the application for Commercial Radio License. It includes details on the following: Canadian/non-Canadian; Canadian talent development; cultural diversity and employment practices; Industry codes to be followed; ethnic programming.[97]

C. License fees:

Under Section 11 of the Broadcasting Act, 1991 CRTC is empowered to issue regulations respecting the license fees. Every licensee pays annually to the Commission: (a) a Part I license fee, payable 30 days after the date of the invoice from the Commission; and (b) a Part II license fee, payable on or before November 30 in each year.

Part I license fees consists of an initial amount and an annual adjustment calculated by the Commission using respectively the formulae (A / B) x C and (A / B) x D

Where:

A is the licensee's fee revenues for the most recently completed return year, less that licensee's exemption level (if fee revenue

B is the aggregate fee revenues for the most recently completed return year of all licensees whose fee revenues exceed the applicable exemption levels, less the aggregate exemption level for all those licensees for that return year; and

C is the estimated total regulatory costs of the Commission for the current fiscal year.

D is the difference between the estimated total regulatory costs and the actual total regulatory costs of the Commission for the fiscal year.

Part II License Fees is an annual license fee, based on the fee revenue of a licensee for the return year being 1.365 per cent of the amount by which the fee revenue exceeds the applicable exemption level.

D. The Process

The license for broadcast (including issue, renewal, modification etc.) are granted through public hearing, convened with previous public notice of about 30 days (Rule 4) under CRTC Rules of Procedure (Rule 3). If more than one application is received in respect of the same area the bidders are treated as interveners (Rule 36).

The CRTC uses the public notice process, wherein parties are entitled to provide written submissions by the deadline, to deal with applications to renew or amend broadcasting licenses. The CRTC generally relies on the public hearing process, wherein after written submission by the deadline notified oral hearing is also granted, when it deals with applications for new broadcasting licenses and when it is considering a major policy issue or amendments to its regulations.

Annexure-IV
Experience In Other Media Sectors
Section - I
Uplinking From India

The Union Government on July 25, 2000 decided to liberalise its uplinking Policy and permitted the Indian private companies to set up uplinking hub/teleports for licensing/hiring out to other broadcasters. The policy also permitted uplinking of any television channel from India, in which case a separate approval (“Approval”) is required which, due to peculiar considerations that are applicable to TV channels, differed in certain respects from that of a Licensee. However, the Government has issued new uplinking guidelines for news channels on March 26, 2003.

A. Uplinking License:

To establish, maintain and operate uplinking hub (Teleport)one has to obtain an Uplinking License (“License”). A non-transferable License for uplinking in C-band only is granted for a period of ten years under Section 4 of the Indian Telegraph Act, 1885 and the Indian Wireless Telegraphy Act, 1933. It is entered into between the President of India acting through the Ministry of Information and Broadcasting (“Licensor”) and the company to which the License is granted (“Licensee”). The Licensee may use its teleport facility only for uplinking TV channels (and not for value added services like fax, data communication etc.), which have been specifically approved/permitted by the Licensor for uplinking by the Licensee.

Indian ownership and preference:

The company applying for the License (“Applicant Company”) has to be a Company registered under the Companies Act, 1956 (Article 1). The total foreign equity holding, including NRI/OCB/PIO, in the Applicant Company shall not exceed 49%. Though Licensee can uplink both to Indian or foreign satellite, Licensees uplinking to Indian satellite are accorded preference.

Decency, Morality and National Security:

The Licensee shall ensure that its facilities are not used for transmitting any objectionable, obscene or unauthorized or anti national content, messages or communication inconsistent with the laws of India. The Licensee shall not use any equipment, which are identified as unlawful and / or render network security vulnerable. Approval to a TV channel mandates adherence to programme code and advertisement code as laid down by the Ministry of Information and Broadcasting. Foreign personnel likely to be deployed by way of appointment, contract, consultancy, etc. by the Licensee for installation, maintenance and operation of the Licensee’s services shall be required to obtain security clearance from the Government of India prior to their deployment.

Monitoring and Enforcement:

The Licensee is obliged to allow access to the Licensor and its authorized representatives for inspection etc. as also to provide the necessary facilities for monitoring of activities at his own cost and to furnish periodic information (Articles 6.3, 6.5, 8, 9,11 of License; Obligation of furnishing periodic information, maintaining records and monitoring facilities obtain in the Approval as well). The Licensor may at any time revoke the License by giving a written notice of 30 days, to the Licensee after affording a reasonable opportunity of hearing on the breach of any of the terms and conditions of the License. The Licensor can take-over any part of or even entire teleport of the Licensee or modify/ revoke/ terminate/suspend the license or order closure of facility in the interest of national security or public interest.

Other Obligations:

The Licensee shall ensure that the uplinking hub (teleports) operation will conform to the provisions of inter-system co-ordination agreement between INSAT and the satellite being used by the licensee.

Licensee shall not either directly or indirectly assign or transfer its right in any manner whatsoever under this Agreement to any other party or enter into any Agreement for sub-license and/or partnership relating to any subject matter of the License to any third party either in whole or in part.

B. Approval for Uplinking a TV Channel from India:

Any TV channel which is aimed at Indian viewership, irrespective of its ownership, equity structure or management control, may apply for an approval (“Approval”) for uplinking from India. The approval is valid for a period of 10 years. In case a TV channel proposes to set up its own uplinking facility/earth station, it has to apply separately for the same as in case of a Uplinking License. The obligations of a TV channel under the permission are as follows:

  1. To undertake to comply with the Programme Code & Advertising Code laid down by Ministry of Information & Broadcasting (under the Cable Act).
  2. To keep record of materials uplinked for a period of 90 days and to produce the same before any agency of the Government as and when required and to furnish such information as may be required by the Ministry of I&B from time to time.
  3. To provide the necessary monitoring facility at its own cost for monitoring of programme or content by the representative of the Ministry of I&B or any other Government agency as and when required.
  4. If the applicant hires its own transponder on a satellite, the same should be in C-Band and should have been co-ordinated with INSAT system.
  5. To comply with the terms and conditions of the permission/approval of the Ministry of I&B. Failure to comply with the terms and conditions of the permission/approval would result in withdrawal of Approval.
  6. After receiving the permission for uplinking from India, the applicant can approach to the uplinking hub(teleports) owner for providing the necessary uplinking facility for their channel(s).

C. News and Current Affairs Channels Uplinking from India:

Introduction:

Under the previous policy, all TV channels aimed at Indian viewership, irrespective of their ownership or management control were permitted to Uplink from India. However, the government revised the Guidelines for News and Current affairs.

Salient Features and Implications:

The new policy provides thatonly news channels uplinking from India will be allowed live news coverage and transmission facilities. Those uplinking from outside India (Hong Kong/Singapore hub) will have to work out ways of delayed telecast as ‘live coverage’ will not be permitted.

  • The new Guidelines apply to existing News and Current Affairs Channels (a channel which has any element of news and current affairs in its programme content) uplinked from India as well as to those proposing to uplink from India. This would imply that an entertainment channel with few news broadcast may attract application of the Guidelines. However, channels which do not have any news and current affairs content will continue to be eligible to uplink from India, irrespective of ownership, equity structure or management control.
  • Existing channel means any channel which has been permitted by the Ministry of Information & Broadcasting to uplink from India. Existing channels will be required to conform to these guidelines within a period of one year from the date of issue of these guidelines (March 26, 2003).
  • A transitory provision was introduced in the guidelines to the effect that content Providers/Channels who are currently using VSAT/RTTS/Satellite Video Phone and similar other infrastructure, which lends itself for use for uplinking/point-to-point transfer of content for broadcast purposes, will be allowed a maximum period of three months to come within the framework of these guidelines.
  • The use of all equipment/platforms for collection of footage/news by channels uplinked from outside for specific programme(s)/event(s) of temporary duration will be entertained on recommendation from the PIB and permitted on a case to case basis, in consultation with the Ministry of Home Affairs and other Ministries/Departments concerned.

Mandatory Uplinking from India for live footage:

Permission for usage of facilities/infrastructure for live news/footage collection and transmission will be given to only those channels which are uplinked from India. To ensure compliance of this policy in respect of permissions/licenses given/to be given for utilization of VSAT/RTTS/Satellite Vide Phone and similar other infrastructure, which lends itself for use in uplinking/point to point transfer of content for broadcast purposes, separate guidelines will be issued by the Ministry of Communications & Information Technology.

Indian Control and Management:

An applicant desirous of uplinking news and current affairs TV channel(s) from India has to be registered/incorporated in India under the Companies Act, 1956 (“Applicant Company”/“Company”) which has complete management control, operational independence and control over its resources and assets as well as adequate financial strength to run a news and current affairs channel.

The foreign direct investment in the applicant company may not exceed 26% of the paid up equity. While calculating the 26% FDI in the equity of the applicant company, the foreign holding component, if any, in the equity of the Indian shareholder companies of the applicant company will be duly reckoned on pro rata basis so as to arrive at the total foreign holding in the applicant company.[98] The equity held by the largest Indian shareholder group should be at least 51% of the equity excluding equity held by Public Sector Banks and Public Financial Institutions.

Majority (3/4th) of its Board of Directors; CEO of the Applicant Company and/or Head of the channel; and all key executives and editorial staff of the channel must be resident Indians who shall be appointed by the applicant company without any reference on or from any other company. It is obligatory on the part of the Applicant Company to take prior permission from the Ministry of Information & Broadcasting, before effecting any alteration in the foreign share holding pattern or in the share holding of the largest Indian shareholder and/or in the CEO/Board of Directors. Further, the Applicant Company will be liable to intimate to the Ministry of Information & Broadcasting the details of any foreigners/NRIs employed/engaged by it for a period exceeding 60(sixty) days.

Further, the company shall while applying make disclosures of the shareholders agreements, loan agreements and such other agreements that are finalized or proposed to be entered into. Subsequent changes will require prior approval of the Ministry and will have to be notified to the ministry within 15 days.

Decency, Morality and National Security:

The Company must comply with the Programme & Advertising Codes, as laid down in the Cable Television Networks (Regulation) Act, 1995 and the Rules framed thereunder. The Company shall keep record of the content uplinked for a period of 90 days and produce the same before any agency of the Government, as and when required. It shall furnish such information, as may be required by the Ministry of Information & Broadcasting, from time to time. The Company shall provide for the necessary monitoring facility, at its own cost, for monitoring of programmes or content by the representatives of the Ministry of Information & Broadcasting or any other Government agency as and when so required.

Other Obligations:

The Company should ensure that its news and current affairs content provider(s), if any, are accredited with the Press Information Bureau. Such accredited content provider(s) only can use equipment/platform for collection/transmission of news/footage. The Company should use transponder on a satellite in C-Band only and the same should have been co-ordinated with INSAT system. The Company should also ensure that it uses equipment which is duly authorized and permitted by the competent authority, or its content provider(s), if any, use equipment duly authorized by the competent authority.

Enforcement:

Failure to comply with any of the terms and conditions may result in withdrawal of such permission/approval and suspension/cancellation of the wireless operating license issued by the WPC.

Section - II
Direct To Home Services

Direct to home (“DTH”) refers to distribution of multi channel TV programmes in Ku Band by using a satellite system by providing signals direct to subscribers' premises without passing through any intermediary such as cable operator. Its reception requires very small dish antenna (12"-18"dia.) as compared to large dish antenna (8-16 feet dia.) in the lower C band frequency (HITS applications are under lower C band).

In December 1996 Central Government announced that a license has to be obtained for Ku-band DTH services. However the Central Government by notification dated July 16, 1997, issued under the Indian Telegraph Act and Indian Wireless Telegraphy Act, banned maintaining or keeping equipment capable of receiving TV signals over 4800 Mhz (Ku-band) till a comprehensive Broadcast Law is in place. In November 2, 2000 the notification lifting the ban on DTH was cleared by the Union Cabinet. The notification was cleared in pursuance of the recommendations of the group of ministers (“GoM”) formed on January 31, 2000 (reconstituting an earlier GoM formed on January 21, 1999) to work out details of DTH services and uplinking facilities.

A. DTH Licenses:

The government notification and the model DTH License has covered most of the issues related to DTH.

Indian Control, management and ownership:

Licensee has to be Indian Company registered under the Companies Act, 1956, with Indian management control (chief executive and majority on the board to be resident Indian citizen) (Article 1.1 and 1.6). The Total Foreign Equity including FDI/NRI/OCB/FII in the DTH Broadcasting sector shall not be more than 49% in which the share of FDI shall not exceed 20%. Provided that the quantum represented by that proportion of the paid up equity share capital to the total issued equity capital of the Indian promoter company held or controlled by foreign investors through FDI/NRI/OCB investments shall form part of the above said FDI limit of 20% (Article 1.2 and 1.3). Similar provisions obtain in the Cable Rules by virtue of definition of the term “Person”. “Person” has been defined to mean an individual who is a citizen of India; an association/body of individuals whose members are citizens of India or a company in which not less than 51% of the paid up share capital is held by the citizens of India. Therefore, foreign investment is allowed up to 49% (inclusive of both FDI and portfolio investment) of paid up share capital.

Decency, Morality and National Security:

The licensee must ensure adherence to programme code and advertisement code s laid down by the Ministry of Information and Broadcasting (Article 5). In addition the License also specifically lays down prohibition of transmission of objectionable/obscene content, use of facilities for antinational activities or of channels prohibited by the Ministry of Information and Broadcasting (Article 6). The licensee is obliged to establish the uplink earth station in India within 12 months from the date of issue of license. All content provided by the DTH platform to the subscribers, irrespective of its source have to pass through the common encryption and conditional access system, located within the earth station, situated on Indian soil (Article 7.5). Though licensee can use the bandwidth capacity for DTH service on both Indian as well as foreign satellites, proposals envisaging use of Indian satellites will be extended preferential treatment (Article 12). The DTH Licensee will be bound to carry channels of Prasar Bharati on the most favourable financial terms offered to any other channel (Article 7.8).

Revenue Generation:

The applicant company is required to pay a non-refundable entry fee of Rs.10 crores and an annual fee equivalent to 10% of the gross revenue as well as a license fee and royalty for the spectrum used. Further, the licensee has to execute a Bank guarantee of Rs.40 crores valid for the duration of the license (Article 3 and 4). The Company being an Indian Company would of course be subject to tax laws in India.

Competition Concerns:

No Broadcasting Company and/or Cable Network Company can own more than 20% of the total equity of an applicant Company at any time during the license period nor can the applicant company hold more than 20% equity share in a broadcasting/cable company (Article 1.4 and 1.5). It is further provided that the Licensee, at all times, has to keep the Licensor informed of any change in the holding pattern of the equity. There are no restriction on the number of licenses on can hold and the license will be issued by the Government for a period of 10 years on non-exclusive basis (Article 2). The license cannot be assigned/transferred without the approval of the Licensor. The licenses shall provide access to various content providers/ channels on a non-discriminatory basis. This constitutes a very important distinction between CAS regime and DTH regime as in CAS regime no such crossholding restriction was evident and DTH regime plugs that loophole. However, it is not clear as to what was the basis of such limit in cross-holding and the merits of the low limit placed by the License require strong justification.

Monitoring and Enforcement:

Under Article 8 of the License condition the licensee is obliged to allow access to the licensing authority and its authorized representatives as also to provide the necessary facilities for monitoring of activities at his own cost, to furnish periodic information. The Licensing Authority, after recording the reasons in writing, may takeover the entire services and networks or revoke/cancel/suspend the license in the interest of national security or an emergency. The Licensor may prescribe guidelines for prices of bouquet(s)/tiers of channels (Article 7). Breach of license conditions may result in suspension/revocation of license and a penalty upto Rs.50 crores can be imposed by the Licensor on the Licensee. However, before taking such action the licensing authority will give the licensee an opportunity of being heard (Article 15 and 20).

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[1] It is the standard process in international competitive bidding recognized and elaborated upon in a number of International Instruments like the WTO Agreement of Government Procurement; UNCITRAL Model Law on the Procurement of Goods (Under Article 18 tendering is the preferred mode of procurement), World Bank Guidelines on Procurement etc.

[2] The revenue share percentage suggested by industry players varies in the range of 2-3% of gross revenue. On the other hand the revenue share percentage suggested in Ernst & Young Report is in the range of 3-5%.

[3] Section 9 (b) of the Broadcasting Act, 1991.

[4] Section 9 (d) of the Broadcasting Act, 1991.

[5] Similar restrictions obtain internationally e.g. in UK.

[6] Section 1 of the Tender Documents.

[7] See revised eligibility criteria Clause (b) and (d)

[8] (1995) 2 SCC 161

[9] Para 1 of Section 3 of the Tender Document.

[10] Section 1 of the Tender Documents.

[11] Section 2 of the Tender Documents.

[12] Section 3 Clause 12 of the Tender Document.

[13] Section 3 Clause 8 of the Tender Document.

[14] Section 3 Clause 8 of the Tender Document.

[15] 75 days in LOI.

[16] Model Consortium Agreement supplied alongwith LOI. The LOI specified a time period of 75 days for the execution of the same.

[17] Section 3 Clause 10 of the Tender Document and Clause 4 of the Licence agreement. Initially, Licence mentioned that the licencee shall obtain as opposed to apply for operational licence.

[18] Section 3 Clause 8 of the Tender Document.

[19] Clause 6 of the Licence Agreement.

[20] Section 3 Clause 8 of the Tender Document.

[21] Introduced later as amendment in the Tender Document.

[22] See e.g. Letter of I & B Ministry to Hind Broadcasting dated November 29, 2000.

[23] As per the Tender Document-50% programmes produced.

[24] See Regulation 10.1 of the Canadian Radio Regulations, 1986.

[25] Section 3 of Tender Document.

[26] Section 3 Clause 9 of the Tender Document.

[27]Limited information was made available to the Committee. .

[28] WIN Radio failed to pay up its licensee fee and consequently forfeited its bank guarantee and its license was revoked. Radio Mid-day had put the government on notice, saying it will go off the air from June 29 next year if the license fee structure is not altered to make the FM broadcasting industry more viable.

[29] E & Y Report.

[30] FICCI-KPMG Report.

[31] See FICCI-KPMG Report, E & Y Report and ICRIER Working Paper.

[32] Ibid.

[33] Interim relief was granted to the private broadcasters in the Metro cities and under the interim set up in Mumbai, the private broadcasters were allowed to commence broadcasting from their own transmission towers by April 29, 2002, with a mandate to migrate to a collocated transmission facility by April 29, 2004. In Delhi, Kolkata and Chennai, the private broadcasters were offered the services of the Prasar Bharati towers on commercial rates and are already providing services through the co-located facility.

[34] Sakal Papers(p) Ltd. v. UOI, AIR 1962 SC 305.

[35] Romesh Thappar v. State of Madras, AIR 1950 SC 124.

[36] Bennet Coleman v. UOI, AIR 1973 SC 106.

[37] See Senior Electric Inspector v. Laxminarayan Chopra, AIR 1962 SC 159.

[38] State of Bihar v. Mangala Rao, (1963) 1 Cri LJ 338.

[39] (1995) 2 SCC 161

[40] The principle that airwaves are public property is a well recognized international principle that has been recognized in various constitutions (e.g. South Africa and Hong Kong-Art. 40 of the 1997 Constitution) and legislation (Canadian Broadcasting Act, 1991- Section 3 (1) (b);)

[41] See generally apart form the cases cited in the section Rashbihari v. State of Orissa, AIR 1969 SC 1091; State of Orissa v. Harinarayan, AIR 1972 SC 1816; R. D. Shetty v. International Airport Authority of India, AIR 1979 SC 1628; Fertilizer Corporation Kamgar Union v. Union of India, AIR 1981 SC 344; State of U.P. v. Shiv Charan Sharma, AIR 1981 SC 1722.

[42] (1994) 6 SCC 651.

[43] R.C.Cooper v. Union of India, (1970) 1 SCC 248; Narmada Bachao Andolan v. Union of India, (2000) 10 SCC 664

[44] BALCO Employees Union v. Union of India, AIR 2002 SC 363

[45] (1996) 2 SCC 405

[46] supra n.2, para 12

[47] (1997) 9 SCC 495

[48] AIR 2002 SC 350

[49] Ibid para 45

[50] Ibid, para 50

[51] Para 4.2.4.

[52] Ram & Shyam Co. v. State of Haryana, AIR 1985 SC 1147.

[53] See in this respect also the report of the Steering Committee Para 12 (v) which recommends the formulation of Policy as a Policy Initiative under the Tenth Five Year Plan.

[54] This process is followed in case of national radio licenses in U.K and Russia.

[55] See for details E & Y Report

[56] It is the standard process in international competitive bidding recognized and elaborated upon in a number of International Instruments like the WTO Agreement of Government Procurement; UNCITRAL Model Law on the Procurement of Goods (Under Article 18 tendering is the preferred mode of procurement), World Bank Guidelines on Procurement etc.

[57] In case of cellular mobile telephony services the successful bidder is required to pay one time Entry Fee based on the final bid before signing the License Agreement (See para10 of the Guidelines on cellular mobile telephony services).

[58] 10th Five Year Plan, Vol. II, Sectoral Policies and Programmes, Para 8.4.24.

[59] Article 3.1 of DTH License.

[60] E &Y Report.

[61] The revenue share percentage suggested by industry players varies in the range of 2-3% of gross revenue. On the other hand the revenue share percentage suggested in E & Y Report is in the range of 3-5%.

[62] The Radio Authority in U.K is empowered to issue such directions on preparation of accounts.

[63] Section 9 (b) of the Broadcasting Act, 1991.

[64] Section 9 (d) of the Broadcasting Act, 1991.

[65] The existing global situation in the field of digital broadcasting are as follows:

(a) European Eureka-147 DAB system has already been implemented in more than 20 countries of Europe, Singapore, Australia, Canada etc., (b)USA’s IBOC system is under implementation in USA, (c) Japanese ISDB-T system has been implemented in Japan (d) Digital transmission has following advantages: Multiple channels, CD quality, Data Broadcasting, Spectrum Efficiency, Power Efficiency, Compatibility with other IT system and equipment; (e) Presently the roll out of DAB in slow due to high cost of receivers, (f) The cost of DAB receives is likely to fall dramatically in the future as has been case with mobile phones, computers and other IT related equipment.

[66] See Canadian Commercial Radio Policy, 1998.

[67] Similar restrictions obtain internationally e.g. in UK.

[68] Secretary, Ministry of Information and Broadcasting v. Cricket Association of Bengal, (1995) 2 SCC 161.

[69] Para 75

[70] Section 1 of the Tender Documents.

[71] Article 1.2 and 1.3.

[72] See revised eligibility criteria Clause (b) and (d)

[73] Please note in case of DTH The Total Foreign Equity including FDI/NRI/OCB/FII in the DTH Broadcasting sector shall not be more than 49% in which the share of FDI shall not exceed 20%. Provided that the quantum represented by that proportion of the paid up equity share capital to the total issued equity capital of the Indian promoter company held or controlled by foreign investors through FDI/NRI/OCB investments shall form part of the above said FDI limit of 20%.

[74] See revised eligibility criteria Clause (b) and (d)

[75] See the speech of Shri Arun Jaitley as Hon’ble Minister of State of the Ministry of I & B and Ministry of Law Justice and Company Affairs in Lok Sabha Debates on August 11, 2000 on the amendment.

[76] AIR 1979 SC 1628.

[77] S.K. Gupta v. K.P. Jain, AIR 1979 SC 734; Western India Theaters v. Municipal Corporation, Pune, AIR 1959 SC 586

[78] 1978(3) SCR 1014

[79] 1982(2) SOC 365 at 369, para 3. See also P.T.R. Exports (Madras) v Union of India, 1996(5) 3CC 268 at 272, para 5; Punjab Communications Ltd v Union of India & Ors, 1999(3) SCALE 149.

[80] (1996) 2 SCC 405

[81] supra n.2, para 12

[82] (1997) 9 SCC 495

[83] AIR 2002 SC 350

[84] Ibid para 45

[85] Ibid, para 50

[86] For details see FICCI and Amarchand & Mangaldas, The Need for a Broadcast Regulator in India, FRAMES 2004 Knowledge Series.

[87] (1995) 2 SCC 161

[88] The European Commission Recommendation (Rec (2000) 23) of The Committee of Ministers to Member States on the Independence and Functions of Regulatory Authorities for the Broadcasting Sector (Adopted by the Committee of Ministers on 20 December 2000 at the 735th meeting of the Ministers’ Deputies).

[89] Part-9 Section 123 of the Broadcasting Services Act, 1996.

[90] See Consultation Documents entitled Pricing of Conditional Access Systems and Related Issues dated October 30, 2001 and Statement of Policy on Pricing of CAS, dated May 8, 2002.

[91] See also Article 6 of the European Convention on Trans-frontier Television.

[92] For an analysis of the Australian radio industry see also the E & Y Report (Annexure IV).

[93] See Commercial Radio Policy 1998 and Decision 99-480 of CRTC.

[94] Section 2 of the Commercial Radio License Application.

[95] Section 3of the Commercial Radio License Application.

[96] Section 4 of the Commercial Radio License Application.

[97] Section 7 of the Commercial Radio License Application.

[98] See revised eligibility criteria Clause (b) and (d)