NEW DELHI / MUMBAI: The government today set in motion the opening up of the FM radio sector while acceding to a longstanding demand of the industry to migrate to a revenue sharing model.

In a bid to make the investments norms more attractive, the government also cleared FDI investment of a maximum of 20 per cent in FM ventures, but struck down a plea of the industry to allow news on private FM stations.

Briefing newspersons today after a Cabinet meeting here, information and broadcasting minister Jaipal Reddy said, "The thrust of the second phase of FM radio is on growth and not on generating revenue (for the government), which was done during the first phase and the experiment failed."

The minister also clarified that FIIs and overseas corporate bodies were also allowed to invest in FM radio ventures, but the government was "now allowing foreign direct investment also" in the sector within the overall cap of 20 per cent.

This move, he hoped, would remove the concerns of the industry up to an extent. Under the revenue share regime, FM radio stations would have to share 4 per cent of their annual revenue with the government.

New entrants would have to pay a one time entry fee via a closed door bidding process and existing operators will be allowed to migrate to the new regime under a complex formula that envisages existing players paying an average amount of the new bids in a city where they have a radio station.

For example, if during the second round of FM radio expansion in Delhi, the average amount of the the bids received is Rs 50 million, then that's the amount that each of the existing players in Delhi would have to cough up to migrate to the revenue share regime. However, senior ministry officials indicated that the attempt would be made to simplify this formula further.

Reddy announced that a total of 330 FM licences in 90 cities were up for bidding but made it clear that no operator can have more than one channel per city.

In a bid to arrest creation of monopolies --- government's explanation, that is --- a national cap on ownership of stations has also been placed. No single company can own more than 15 per cent of the total frequencies being offered all over the country.

If 330 radio stations were to be taken as a benchmark, then it would mean that no company can be allotted more than 49 frequencies (15 per cent). The bidding for the second phase is expected to start in a month's time.

Cities are being classified into four categories A/B/C/D, with the four metros being designated A+. Government officials indicated that they expect about 11 FM stations in metro cites, six stations each in A and B category cities, 4 stations in C category cities and two stations in D category centres.

FM radio stations in C and D category cities would also be permitted to do networking, which is expected to bring down investments up to an extent in these smaller cities.

The contours of the policy announcements made by the government today indicate that it has broadly accepted the recommendations of the Dr Amit Mitra panel and sector regulator Telecom Regulatory Authority of India.

Speaking about the government's All India Radio network, Reddy said it would be beefed up to withstand competition from the private sector.

Reddy also added that the opening up of the private FM radio would lead to generation of employment.

A clearly elated AP Parigi, CEO of the The Times Group's Entertainment Network, which manages the country's largest FM network Radio Mirchi, said: "I would say we are delighted with the announcement made today. It is a very good beginning and should revolutionise the FM sector. We welcome the UPA government's initiative in this regard. The potential that FM offers (in growth terms) is even more than what telecom and the mobile industry have achieved."

Parigi did have some "areas of concern" (three to be exact) though. Referring to the one-station-per-company-per-city norm that the government has announced. "We believe a viability in terms of bringing in different genres of content would be compromised by this decision."

Parigi also expressed disappointment that the government's decision was made effective April 2005 rather than from April 2004. According to Parigi, carried forward losses for Radio Mirchi alone were Rs 1.02 billion while for the industry as a whole the figure stood in the region of Rs 2.1 to 2.4 billion.

The third "negative" in the announcement was the continuing ban on news and current affairs programming on private FM, Parigi pointed out.

Music Broadcast Pvt Ltd. (Radio City) vice-president finance Ambar Basu, meanwhile, said, "These are welcome decisions and would certainly give a fillip to the industry, which has been experiencing severe financial difficulties in the prior licensing arrangement, constraining investment into business building in what is a nascent industry. Multiple stations in cities will certainly help towards delivering more segment relevant programming to targeted audiences in a local area. We will await a full reading of the governments' policy before commenting any further on this."

Former CEO of Radio City Sumantra Dutta hailed the government decision as a "progressive" one, saying, "It's an awesome day for the Indian radio industry and FM radio is all set to rock the nation in the true sense now." He, however, demurred from stating whether Star would re-enter the FM radio sector now.

Said Radio Today (Red FM) COO Abraham Thomas: "We are very excited with the policy announcements made by the Minister and we welcome it. However, we have some concerns:

"1. We hope there is no further delay and the implementation of the policy happens immediately.

"2. We believe News should have been allowed on FM as this would have allowed newer genres additing to the variety of the content.

"3. We are disappointed with the FDI limit being restricted to 20 per cent. We feel it should have been capped at the same levels of Print and TV at 26 per cent.

"4. The burden of the license Fee should have been reduced with effect from April '04 and not April '05

"The Radio Revolution is about to happen. Radio is a local driven business with unique strengths and this has not been exploited at all as a medium. We will now see innovation and differentiation in content and marketing. The listener will have huge choices. The advertiser will be able to reach out to his audience in a manner that only radio can let him.

"The removal of the license fee will most definitely help us although we were expecting this to be effective April '04. Our existing three stations in Mumbai, Delhi and Kolkatta will see some very aggressive initiatives, creating a strategic differentiation. We are also evaluating the opportunity that the new markets offer and have some aggressive plans in that area."