1.1 Ofcom is responsible for the licensing of local commercial analogue radio stations. This includes re-advertising, re-awarding and renewing licences, if appropriate, in accordance with relevant legislation.
1.2 When Ofcom advertises a local commercial analogue radio licence, or re-advertises such a licence when it nears its expiry date, it can set a licence length of up to twelve years. Where a licensee also provides a service on a relevant DAB multiplex, it is eligible for an uncontested renewal of its analogue licence.
1.3 Our current policy, which we consulted on in 2007, is that re-advertised licences will be granted with an expiry date of 31 December 2015 or for five years, whichever is longer. This policy was considered the best option to maintain flexibility ahead of any new legislation regarding digital switchover. The common end date and subsequent shorter licence length were designed to ensure that we would not licence analogue stations far beyond a possible digital switchover.
1.4 The Digital Economy Act 2010 ("the 2010 Act") introduced some changes to the way commercial radio is regulated. In particular, it allows the Secretary of State to nominate a date for digital switchover of certain services, requiring Ofcom to vary the length of relevant licences so that they end on that date. It also allows licensees who offer digital services on a relevant DAB multiplex to renew their analogue services for a further seven years.
1.5 Because of these changes, on 15 July 2010 Ofcom published a consultation on proposed changes to the duration for which local analogue commercial licences are granted ("the Consultation"). This is available at http://stakeholders.ofcom.org.uk/binaries/consultations/local-licence-duration/summary/local-licence-duration.pdf. The Consultation set out a number of policy options for setting the duration of re-advertised licences, including our preferred option - that local licences are re-advertised with a length of seven years. The desired outcome is a system which is fair to all, provides flexibility for the future, relative certainty for licensees and does not distort DAB incentives.
1.6 We received seven responses to the Consultation, most of which disagreed with our preferred option and instead favoured either a differential approach (with a variety of criteria suggested) or a duration of twelve years for all licences. One response was anonymous, and another completely confidential.
1.7 This statement sets out our policy decision on the duration of local analogue commercial licences.
Ofcom's decision and next steps
1.8 We have assessed the policy options in light of the analysis presented in the Consultation and the responses we received.
1.9 While we understand why some respondents argued for a differential approach, we do not believe that such an approach would be appropriate. We have been unable to identify any criteria which can be consistently applied and deliver the desired outcome. A case by case approach might be very difficult to implement and could create uncertainty and perceived unfairness. Adopting a significantly different approach between sets of stations is also likely to treat some stations unfairly. Moreover, all the suggestions we received proposed particularly long licences for stations likely to remain on analogue spectrum after any digital switchover. This would restrict the flexibility available to Ofcom to fulfil our spectrum management duties, or for Government to introduce a new regulatory regime.
1.10 This leaves a choice between the maximum twelve year duration and a shorter length, including the seven year option that we proposed in the Consultation.
1.11 We note that there is strong industry support for twelve years, given the greater certainty this would provide to operators. We appreciate the points about viability that have been made to us and, as we stated in the Consultation, we consider it important to offer potential licensees the opportunity to make a reasonable return on their investments, to ensure that operators are prepared to apply for licences and can maintain provision of a service. For this reason, we believe it would be appropriate to give licensees greater certainty than they are afforded by our current five year policy.
1.12 By considering the impact that licence duration might have on the nature and scale of initial start-up costs as well as the pattern of on-going operating costs and revenue flows, we concluded in the Consultation that licence periods of less than five years might significantly influence the commercial viability of radio broadcasters. Periods greater than five years might give commercial radio stations a better chance of recovering their total expenditure during the licence period depending on the way their business is structured and planned. No respondent provided quantitative evidence to contradict the analysis and conclusions. We therefore need to balance the consideration of station viability against other factors given that, in our view, licence durations shorter than twelve years but above our current five year policy are unlikely to prevent operators from earning a sufficient return on their investment and providing a high quality service for listeners.
1.13 Flexibility remains an important consideration, even taking into account the provisions of the 2010 Act. There remains a great deal of uncertainty around the future direction of the sector. Some stations are likely to continue on FM following a digital switchover, and it is important that Ofcom retains the ability to make changes to secure the optimal use of this spectrum in the future and maximise benefits to citizens and consumers. Major exercises (such as re-planning remaining licences in order to make the most efficient use of the FM band) would be more appropriately and effectively carried out following the expiry of licences rather than partway through licence periods, and so would be facilitated by having licences that were shorter than twelve years.
1.14 Such flexibility would also be useful if Government decided to introduce a new regulatory regime for those stations remaining on analogue frequencies, allowing high quality services to flourish and serve listeners' needs effectively. Having a shorter licence period is likely to increase Government and Parliament's flexibility to introduce a new regime, to the extent that the regime may include provisions that it would be difficult or undesirable to introduce partway through a licence period.
1.15 Respondents have suggested that we overestimated the incentives of stations to cease to provide a DAB service. Although we accept some of these arguments, we still believe that a significant difference between the length of new renewals and the duration of a re-advertised licence would distort incentives to continue to offer DAB services, given the additional years of revenue that would be on offer. Stations would of course be mindful of the risk of not being successful in a contested re-advertisement. But this may be a risk worth taking for some operators if they believed that the licence would be uncontested in any award process or that as an incumbent they would be highly likely to win any such contest. Stations which opted for re-advertisement rather than renewal because of the longer licence length on offer might cease to provide a DAB service, which could reduce consumer choice.
1.16 We appreciate the concerns of respondents, and have considered their arguments carefully. However, the factors in favour of a shorter licence length - incentives in the case of stations providing a DAB service and flexibility in the case of stations which are likely to continue on analogue frequencies - coupled with our view that seven years is a sufficient period in which to earn a reasonable return on an investment, lead us to conclude that a seven year licence duration is more appropriate at this time.
1.17 Local commercial radio licences which are re-awarded will be granted for a period of seven years.
1.18 We expect to review this policy should the Secretary of State nominate a date for digital switchover, or in the event of other significant radio policy developments (such as Government setting out proposals for any new regulatory regime).
1.19 In the Consultation we said that we were postponing all re-advertisements previously scheduled in our timetable until a new policy on licence duration was adopted. We are publishing an updated timetable with this statement.