4 Bills and 2 Draft Orders considered - Delegated Powers and Regulatory Reform Committee Contents


Thank you very much for your email dated 20 May 2015, regarding the Legislative Reform (Further Renewal of Radio Licences) Order 2015. Please find below a response to the points of clarification you raised.

Firstly, you point to the conditions of the Act in your email:

'As regards the conditions in section 3(2) of the 2006 Act, the ED states:

"4. The provision does not remove any necessary protection:

The provision does not remove any necessary protections, for either the radio industry or public.

"5. The provision does not prevent any person from continuing to exercise any right or freedom which that person might reasonably expect to continue to exercise:

The provision does not prevent any person from continuing to exercise any right or freedom which that person might reasonably expect to continue to exercise."

I fear that these simple assertions do not go far enough. We would expect the Department to offer some additional comments to show why these assertions are made.'

Regarding the point that the provision does not remove any necessary protections, it is important to recognise that Ofcom has extensive obligations set out in the Communications Act 2003 and other legislation to protect consumers. For example, Ofcom has a statutory obligation to monitor competition and to ensure that the market is not dominated by a small number of players to the detriment of consumers and media plurality. This measure will not affect or change Ofcom's role in any way. In addition, there are protections for licence holders which are not affected by this Order. Ofcom may only deprive a person of their licence in particular circumstances, or include provisions about simulcasting on digital which are in line with the Broadcasting Act 1990. These are also unaffected by the Order.

On the specific issue around preventing the exercise of rights or freedoms, we must emphasise that no person or organisation has a right to hold a radio licence, nor to own or operate a radio station. This legislation therefore would in no way restrict an individual's right or freedom on this issue as there are no reasonable rights or freedoms to restrict. Nor are the rights or freedoms of existing licence holders restricted; the requirement to simulcast was introduced as part of the previous extension. There are no new terms to be included in the analogue licences. As indicated above, as regards consumers, their listening experience will be unaffected, as Ofcom remains required to ensure that services are delivered and that news plurality is maintained.

Secondly, you also noted:

'There seems to be a wide gap between DCMS and Value Partners (VP) on the issue of maintaining stability in the commercial radio sector, or rather the threat to such stability that Option 1 would pose. I assume that DCMS commissioned a report from VP because the Department regarded the consultancy as expert in the field. In that case, it would be helpful for the Department to set out more fully what evidence it has for disagreeing with VP's recommendation - since it is disagreement on this issue which underlies the statement in the ED that "we consider that a relicensing process could be detrimental to the listener experience: we note that responses to our consultation have highlighted a real risk that the cost and business impact to licensees of reapplying for their licences would undermine investment in content."'

Our proposed Order affects those licences which were renewed under the terms of the Digital Economy Act 2010; specifically stations that have received or are able to receive a further licence renewal of 7 years, on the condition that they provide an equivalent service on DAB.

There are in total around 280 commercial radio licences, of which over 120 would not be entitled to an automatic renewal under this Order, as they do not provide an equivalent DAB service. These licences would therefore be re-advertised - i.e. licensees would have to re-compete, against other potential entrants - in an open competition, in line with the terms of the Broadcasting Act 1990 - they would not be granted a further renewal. As such, we do not consider that new entrants are excluded from the analogue commercial radio market. By way of illustration, the Greater London AM licence was recently re-advertised and Ofcom received six bids for this frequency (N.B. the licence was eventually re-awarded to the incumbent Sunrise Radio). The local commercial FM licence for Portsmouth was also recently put out to competition and attracted two bids; again, the licence was re-awarded to the incumbent. These two recent examples demonstrate that new entrants will continue to have the opportunity to access the analogue market. The Portsmouth example however, with only two bids, could suggest that interest in acquiring analogue radio licences is declining, given radio's future as a digital medium.

Furthermore, we are firmly of the opinion that DAB provides a rich platform for potential new entrants. DAB is a more efficient use of spectrum and provides far greater capacity for new stations than analogue. Ofcom recently let the second national digital radio multiplex licence which was awarded, following a competition, to the Sound Digital consortium. When launched in 2016, the new service will provide 15 new national radio stations initially, with room for further new entrants in the future.

The Value Partners' report was commissioned to consider the competition issues arising from the proposed changes and not to consider the wider impacts on consumers. We do not disagree with their basic conclusion that there would be interest from both other existing licensees and new entrants in the affected licences, but Value Partners were unable to provide quantitative evidence of the scale of the likely demand for each licence that is due to expire. Although it may be possible over time to collect more data here, it is very difficult to demonstrate conclusively that there would be significant challenge to incumbents given the options available for new stations either on digital platforms or on line. Indeed, one of the key challenges is the separation of possible expressions of interest (which Value Partners' report alluded to) from the real likelihood of that interest arising in 3-6 years' time.

Therefore, whilst we acknowledge that there is a theoretical benefit emerging from open competition highlighted by Value Partners (i.e. of a potentially greater range of stations and content), we do not consider that the value of this hypothetical benefit to listeners and industry of a small number of new services outweighs the cost and significant impact to the wider radio industry of a wholesale re-advertisement process. It is worth noting that over 80% of listeners are satisfied with their local radio station (Attitudes to Local Radio [a summary of the findings of a quantitative survey of local radio listeners], Ofcom, July 2013). This also suggests there is little consumer benefit to be gained from a widespread re-advertising process. In any event, throughout the history of the current licensing regime, only around 10 % of re-advertised licences have been awarded to anyone but the incumbent.

We also consider that the report gives insufficient weight to the quantifiable costs to industry of re-licensing, the cost to Ofcom, plus the risk that content quality is reduced. Further detail of the costs to industry of a relicensing process can be found in our Impact Assessment, as well as the consultation responses. This Impact Assessment has been validated by the independent Regulatory Policy Committee, and I have attached their findings to the same email as this letter.[8]

8 June 2015

8   We are not including the validation by the Regulatory Policy Committee in this Report. Back

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