1. The Radio Authority welcomes the publication of the Communications White Paper as "a radical vision for the future of broadcasting and telecommunications, offering flexible converged regulation whilst ensuring the continued protection of the interests of listeners and citizens". In this document, we respond to questions raised by the White Paper in six broad areas: radio and cross-media ownership; ownership disqualifications; Access Radio; regulation of the BBC; future radio licensing; and high level principles affecting the structure and governance of OFCOM.

2. The Authority restates here its view that radio is a distinct medium and will remain so for the foreseeable future. That distinctiveness is likely to be enhanced as other media converge more swiftly. As the White Paper recognises, it is necessary to find a way of retaining specific sectoral attention to radio as part of a converged regulatory structure.

3. References to ‘A New Future for Communications’, also referred to in this document as "the White Paper", are given in italics. References to the Radio Authority’s submission to DCMS/DTI dated June 2000 and entitled ‘Radio Regulation for the 21^st Century’ are set out in bold type.

4. The Radio Authority welcomes the broad direction taken by ‘A New Future for Communications’. We make the following proposals and observations in response to the invitations for comment contained within the White Paper.

• Radio is a distinct medium and is likely to remain so at least through the first decade of OFCOM’s regulation of broadcasting and telecommunications. The internal structure of OFCOM will need to make provision for the application of sector-specific regulation to radio broadcasting, within the single converged body.
• Local plurality in radio ownership should be guaranteed through a series of transparent formulae to ensure that in any area with a well developed local radio market there are no fewer than three separate owners of local commercial stations, in addition to national commercial services and the BBC. However – in a modification of our previous recommendation – we recommend that the ceiling on the number of local commercial licences that may be held in any one area should be five rather than four.
• Also in a modification to our previous recommendation, we suggest that local newspapers should be able to own an analogue radio licence in their circulation area provided that at least one other local commercial radio service is broadcast in that area.
• To meet the White Paper’s wish that there should be a mechanism to regulate the selling on of local licences where necessary, the Authority proposes that the new regulator shall have powers similar to those which currently apply to Independent
• National Radio, for two years after the licence is issued, together with the power to protect the existing format.
• The plurality rules for local radio should operate concurrently with the application by OFCOM of general competition principles to mergers and acquisitions at a local and national level.
• The Radio Authority sees no reason for the rule excluding single religious bodies from holding national radio licences to be changed, but recommends that multi-faith ownership should be allowed.
• Further discussion of Access Radio will take place at a seminar to be organised by the Radio Authority on 12 February 2001, following which the Authority will make a further submission to Government.
• OFCOM should be confirmed in the task of evaluating the performance of BBC Radio, including in respect of the 'third tier' of content regulation envisaged in the White Paper.
• The reserve powers in respect of the BBC which the White Paper envisages remaining with the Secretary of State for the time being should, at Charter renewal, pass to OFCOM.
• OFCOM should take over responsibility for frequency planning and allocation for both the commercial and publicly funded radio sectors, to ensure the most productive use of a scarce public resource.
• New analogue radio licensing will continue until around 2006, and new digital radio licensing until towards the end of the decade. Such licensing will need specialist expertise within OFCOM, with the final decision on licensing being made by a Radio Committee of independent non-executives, reflecting the public interest.
• The Board of OFCOM, which will oversee the Management Board, should be headed by a non-executive Chairman and should have at all times a majority of independent non-executive members. OFCOM should be a statutory corporation.
• The wide range of tasks which OFCOM will need to undertake means that it should not be artificially divided into two or three sections but should be an integrated body. It will need to include a specialist radio broadcasting division, undertaking the licensing of analogue services and digital multiplexes, format management, and overseeing radio specific ownership rules, for a number of years after the formation of OFCOM, and to establish co-ordinating machinery for radio specialisms within other horizontal divisions.
• OFCOM should be given an additional objective to have due regard to the commercial interests and health of the media and communications industry.

5. The Radio Authority proposed to Government in its previous submission (see 5.14 to 5.19) that the existing points system should be replaced by a series of simple numerical formulae, applying at any point within the licensed area of a service. This approach assumed a universe of stations calculated using only Independent Local Radio licences, and was based upon a principle that in well-developed local radio markets there should be no fewer than three separate owners in any area. Working on this basis, and taking into account the services provided by Independent National Radio operators and the range of non-commercial services from the BBC, the Authority was satisfied that the necessary plurality of ownership would be protected and made clear. We note that the White Paper establishes "plurality of public expression" as central to OFCOM’s regulatory objectives. (8.5.1)

6. In response to the White Paper’s discussion of radio ownership (4.7) the Authority maintains its view that formulae along the lines that we proposed in June 2000 will provide the basis for a fair, plural and transparent way of regulating radio ownership. However, it has been put to the Authority that the ceiling established by the formulae proposed in June 2000 (5.17 and 5.18) has been set too low. Without departing from the principle that there should be at least three separate owners of commercial local radio licences - plus the BBC - in any locality, the Authority sees no reason why the maximum number of licences held by any one owner should not be five rather than four as originally proposed, where sufficient analogue licences exist to sustain the basic principle.

7. It has been further argued that the universe forming the basis for calculating the number of licences which may be held should include Independent National Radio services and all BBC services, the latter counted according to the number of different radio stations - national and local - provided by the Corporation in a locality. The inclusion of Independent National Radio, whereby three services are provided in most parts of the United Kingdom would bring in competition issues which are not part of the sector-specific local plurality issues (leaving aside issues raised by Atlantic 252 or any similar non-UK licensed services in the future). For that reason it is not appropriate to include INR services. The position of the BBC is rather different. However, the Corporation’s five national services are not relevant in adding to the potential for the expression of local views or the provision of specifically local information. The Authority therefore does not think it appropriate to include BBC national services in any calculation. So far as BBC local stations are concerned, although expression of views and provision of information is obviously relevant, the Authority would not wish to depart from its principle that there should be at least three separate owners of local radio stations plus the BBC in any area with a well developed radio market. BBC local radio is therefore taken account of in the existing calculation. The Authority does not believe that the existence of a BBC local radio station in any locality means that plurality objectives would be adequately met if there were merely two commercial owners of other radio stations.

8. The formulae now proposed, taking account of the revision suggested in paragraph 6 above, are that:

• In any area where twelve or more ILR licences exist, no more than five may be owned by any one company;
• In any area where nine to eleven ILR licences exist, no more than four may be owned by any one company;
• In any area where six to eight ILR licences exist, no more than three may be owned by any one company;
• In any area where three to five ILR licences exist, no more than two may be owned by any one company;
• In any area where there are only two licences no restriction shall apply;
• These rules shall be applied without regard to waveband.

9. For digital radio, we propose the following formulae (which are slightly amended from our previous proposals):

• Given the key position occupied by the multiplex operator as 'gatekeeper', no company own more than 20% in more than one local multiplex in that locality;
• On a national (i.e. UK-wide) multiplex, no programme provider may hold a licence to provide more than three services;
• On local multiplexes, no programme provider may hold a licence to provide more than one third of the total number of commercial digital programme services available on local multiplexes in a given locality.

We anticipate that, once digital radio has moved beyond its development stage, rules governing the ownership of multiplexes might well become matters for competition rules rather than formulae of this nature.

10. In every instance, the formulae assume an effective definition of ‘control’. This will need also to take into account the existence of 'material interest'. In order to establish plurality rules from the perspective of the individual listener, and to avoid heavy regulation, a mechanism based on co-regulation will require operators to ensure that there is no point within their licensed areas where they are in breach of these formulae. This also gets away from the existing complicated rules regarding overlaps. OFCOM would then deal with any breach by requiring companies to sell down with immediate effect.

11. The Radio Authority maintains also its suggested approach to cross- ownership of radio stations and newspapers, as set out in 5.20 of our June 2000 submission. We believe that this principle is fair and clear, and removes the uncertainties inherent in a discretionary regime based upon public interest tests conducted by the regulator. However, we recognise from representations put to us that the formulae we proposed represent a further restriction on what is presently allowed in localities where fewer than three radio stations exist. (For other areas we retain our proposal of June 2000.) Therefore, we propose amending 5.20 of our previous submission to allow a newspaper with more than 50% of local market in terms of circulation to own an analogue radio station in such a small market so long as there exists at least one other analogue ILR radio station. We do not believe that, in an area where there is only one local digital multiplex, plurality is properly served if a local newspaper with a substantial market share locally is able to own that multiplex. With regards to television, the Authority considers plurality is best protected by retaining the existing prohibition on the joint ownership of overlapping local radio and regional Channel 3 television services.

12. In summary therefore, we propose the following formulae to govern cross-media ownership between radio and newspapers and radio and commercial television (we use the specific term ‘national’ for UK-wide radio and television licences):

• No newspaper with more than 50% of a local market in terms of circulation should be able to own an analogue radio station in that market unless there exist at least two other analogue ILR radio stations - not so owned - except in areas with only two ILR stations where one may be owned by the newspaper;
• A newspaper should not be able to own a local digital multiplex in that area unless there is at least one other multiplex not so owned;
• No UK-wide newspaper should be able to own an analogue INR station or a national digital multiplex;
• No company should be able to own both a national commercial television licence and an analogue INR licence;
• No company should be able to hold a regional commercial television licence and an analogue ILR licence for the same area unless there exist at least two other analogue ILR stations not so owned, nor own a local digital multiplex in that area;
• Subject to those rules, there should be no limitation on cross ownership between radio and newspapers, or radio and independent television, except those which apply to the concentration of radio licence or multiplex ownership itself, as are set out above.

13. These rules would apply to all ILR services, whether local or so-called ‘regional’. The legislation should be so framed to enable the amalgamation of analogue and digital rules, by Order, once digital radio services have attracted significant audience numbers.

14. The Authority warmly welcomes the signal given in the White Paper that a mechanism should be put in place to regulate where necessary the selling on of local radio licences (5.11.1). It shares Government’s concern that a uniform move "towards a middle ground of national taste" would be against the public interest. The Authority proposes to Government that provisions similar to those which apply to Independent National Radio, in section 103 of the 1990 Broadcasting Act, could be applied to local radio licences. This would give the regulator the power to prevent a change of control, if it seems that such a change would be prejudicial to the principles of section 105 of the 1990 Broadcasting Act (or its equivalent in any new legislation) on the basis of which the licence was originally issued. The Authority believes that the "relevant period" during which such consideration might be given for ILR licences should be two years. The existing power under section 86(7) of the 1990 Act to withhold consent to a transfer unless satisfied that the new owner will be able to comply with all the existing conditions of a licence should, for the new regulator, be extended to all changes of control. The Authority also believes that the power it has under section 93 of the 1996 Broadcasting Act, to firm up licence conditions which protect the character of a radio station when it is taken over, should be extended to the new regulator and should apply to all licences, not just those awarded before the 1996 Act came into operation.

15. The White Paper has considered whether local commercial radio licences should continue to be readvertised at the end of their term. It concluded (5.11.1) that licences should generally be readvertised, but proposes giving to the regulator the ability to renew licences without competitive readvertisement "if it is justified by their level of performance". The Authority welcomes this proposal for greater flexibility. We recommend that the concept of "level of performance" should be linked not merely to the extent to which a station continues to meet its format obligations, effectively self-imposed at the time of application, but should reflect an above average performance, perhaps in challenging circumstances. This would accord with the approach recommended by the White Paper which assumes that most licences will be readvertised.

16. In our June 2000 submission, we recommended that UK-wide accumulations of radio licence ownership should be governed by competition principles and not by any sector-specific rules. We note that the White Paper foreshadows significant changes in UK-wide ownership rules for independent television, and also that OFCOM shall exercise sector-specific competition powers concurrent with the OFT. For commercial radio therefore, we envisage that OFCOM would apply general competition rules to mergers and acquisitions at a national and local level, and establish relevant market definitions, and that these would apply concurrently with local plurality rules.

17. The Authority welcomes the proposals in the White Paper to amend ownership disqualifications (4.9). It is particularly appropriate that the anomaly whereby religious bodies may hold analogue but not digital local radio licences is to be addressed.

18. The Authority does not believe that there should be any further relaxation of the ban on ownership of national radio services by single religious bodies. However multi-faith ownership, fully reflecting the religious nature of UK society, should be permitted. We have noted the opinion of the European Court of Human Rights that existing UK legislation is justified by the scarcity of available frequencies. Since, with spectrum available for just three INR analogue licences, it is wholly out of the question that even the majority of established religions can have the privilege of ownership of a licence in this scarcity, the Authority continues to believe that only allowing multi-faith ownership is the fairest way to proceed. The existence of digital radio, at least in the spectrum presently allocated to it or likely to be allocated to it in the future, does not in any significant way alleviate this spectrum scarcity. The Authority feels the greatest reluctance at allowing a situation to come about where rival religious bodies have to engage in competition to place the highest cash bid, in order to gain access to a national radio service, and thereby to exclude equivalent access for another religion or another denomination.

19. We note that it is the intention of the White Paper to allow local authorities to provide radio-based information services. This will involve overturning the present restriction on public funding of radio services (paragraph 4(1) of Part II of Schedule 2 of the Broadcasting Act 1990). As such, we believe that this should be considered in the context of the Authority’s proposals for Access Radio, and the necessary controls and administration which will be required by such a separate sector of radio.

20. In response to the invitation issued in 4.5.2 and 4.5.3 of the White Paper for views and debate about the concept of a separate tier of Access Radio services and of a Radio Fund to support it, the Authority has organised – with the agreement of Government – a seminar to be held on 12 February 2001. We hope that this will be an occasion for all those with an interest in these concepts to express and debate their views. Following the seminar, the Authority may wish to add to its own views, as set out in its June 2000 submission, on Access Radio.

21. The Community Media Association has argued, in line with the Radio Authority’s June 2000 submission to Government (10.16), that there should be a range of pilot experiments to cover as many aspects as possible of the proposed Access Radio sector. However the White Paper has not indicated that Government necessarily intends to proceed with Access Radio, nor has it given any authorisation to the Authority to undertake such experiments. Given the wide range of small-scale services already established by the Authority, and the progress which has been made with long-term Restricted Service Licences as well as the widely used and highly effective short-term Restricted Service Licence scheme, the Authority does not feel justified in initiating any such experiments at this stage. We will, however, be alert to indications from Government following the 12 February seminar and the opportunity to consider views expressed on that occasion.

22. The Radio Authority judges that the White Paper’s approach to the content regulation of public service broadcasters, described as ‘tier three’ regulation, is a valuable way of protecting and enhancing the public interest. We consider it important that, as envisaged in paragraphs 5.8.4 and 5.8.5 of the White Paper, OFCOM shall be given the task of evaluating the performance of BBC Radio against the self-imposed high level remits. That will require OFCOM to have both the capacity and expertise to undertake such a radio-specific task. It will have the value of ensuring that there is a more even set of rules governing formats for publicly funded radio and for the commercial sector.

23. We recommend that powers in respect of the BBC which the White Paper envisages remaining with the Secretary of State for the time being (paragraphs 5.8.6 and 5.8.7) should, at the time of the Charter renewal, pass to OFCOM. This would bring all United Kingdom broadcasting under the umbrella of a single regulator, which will have the necessary powers and expertise to ensure fair competition, plurality, high quality of content, range and diversity of programming, and the protection of the interests of citizens. It would not any more threaten the editorial independence of the BBC than do the present arrangements; indeed, it could be argued that at least in terms of public perception this independence would be enhanced by further distancing the BBC from Governmental involvement in its activities. (It is assumed that the Government would of course retain the special reserve powers of direction which it currently holds in the case of both the BBC and commercial broadcasting).

24. As a general rule, the Authority restates its view that it is axiomatic that, in highly competitive markets, market operators must not be both players and regulators. For this reason if no other, external regulation of the BBC is required.

25. The White Paper acknowledges the continuing task for OFCOM in licensing new analogue radio services, rolling out digital multiplexes and readvertising existing analogue licences (3.6.3). Given existing spectrum resource, there is likely to be a significant degree of new analogue licensing until at least around 2006. After that, there is the prospect of additional small-scale licences in less densely populated areas. For digital radio, assuming access to L-Band and some additional Band III spectrum after the middle of the decade, new digital multiplex licences might continue to be offered until the latter part of the decade, and smaller-scale digital multiplexes for some years thereafter. The issue of Restricted Service Licences will continue at or close to the current level. In addition, subject to the outcome of the continuing review of the use of the FM spectrum, there may be an additional tranche of new analogue licensing to be undertaken. It will therefore be necessary to include within OFCOM’s structure a separate capacity to undertake these licensing tasks. This would also include Access Radio licensing if this goes ahead.

26. It is the Authority’s view that the final decision on such licensing should not be left to an individual person. Radio licensing is the last major licensing task where awards will be made on the basis of specific statutory criteria. The licensing of the radio system so far has been carried out with decisions being made by a Board of independent non-executives, reflecting the public interest. That collegiate, lay approach, time-honoured and proven in broadcasting matters, means that decisions are made by those whose only remit is to serve the public interest and who – whatever their necessary expertise – do not have a professional involvement in the day to day regulation of the industry. This is a necessary protection for the allocation of a valuable public resource for commercial exploitation, for which licences are fiercely competed for and which generate a remarkable level of passion. An individual making such decisions on his or her own would be placed in an unacceptably exposed position. The public interest is best served by establishing a Radio Committee, as a sub-committee of OFCOM, and chaired by one of OFCOM’s non-executive members which would guarantee the necessary level of independence in licensing.

27. The Authority takes the view that, if it is decided to go ahead to establish a Radio Fund to support Access Radio, this Radio Committee should not also make funding allocations. There will be a need to keep these functions separate, and the grant work of the Radio Fund will need to be overseen separately, probably within OFCOM, but at a clear arm's length from licensing.

28. The Radio Authority welcomes the intention set out in the White Paper that OFCOM shall follow the established principles of good corporate governance, and Better Regulation, and be governed by a Board with a separate Chair and Chief Executive. Given the particular public interest in the regulation of media and communications, we believe the public interest will be best protected by ensuring that OFCOM itself includes a majority of non-executive Commissioners, although they will clearly require experience and expertise in these fields. We anticipate that OFCOM will oversee a Management Board, and that the Chief Executive and a small number of others from that Board will serve on the Commission itself.

29. The range of tasks which OFCOM will be required to undertake includes:

• Competition regulation, to include:
• pricing of the broadcast spectrum
• price controls
• UK-wide ownership rules
• Legal and licensing, to include:
• telecommunications licensing
• licensing of television, radio, satellite, cable and digital services
• all legal advice
• Spectrum management, to include:
• frequency planning
• special interest groups using spectrum
• spectrum policy
• spectrum services
• Service delivery, to include:
• roll out and build programmes
• universal access
• access and interconnection
• consumer protection, including conditional access, electronic programme

guides and pricing

• servicing the Consumer Panel
• Content, to include:
• ‘tier one’ – standards and complaints
• ‘tier two’ – quotas
• ‘tier three’ – co-ordination of public service broadcasting self-regulation
• fairness and privacy complaints
• promotion of internet content self-regulation and media literacy
• video ratings and classifications (if included)
• Finance, both internal and external
• Policy and international relations
• Administration
• Personnel
• Press, public affairs and internal communications
• Information services, to include:
• information technology
• library
• Research, including content, delivery and technical issues
• Commissariat, to serve the Board and Management committees.

It will also be necessary for OFCOM to put in place mechanisms to ensure that it adequately reflects the diversity of the United Kingdom.

30. OFCOM will be required to undertake such a range of tasks that it is clearly unduly simplistic to seek to establish either two separate self-contained structures (content and infrastructure) or even three (adding spectrum management). Not only are there a number of significant tasks that will not easily fit within the artificial strait-jacket of a dualistic approach, but matters such as competition affect both content and delivery whilst retaining a necessary separateness. If OFCOM is to work as envisaged, as a properly integrated single regulator, each of these separate functions will need to be represented as an integral division incorporating appropriately qualified professional staff who can work both cross-sectorally and have the necessary sectoral expertise.

31. We also recommend that, in addition to the objectives for OFCOM set out in the White Paper (8.5.1), the following objective should be established:

• To have due regard to the commercial interests and health of the media and telecommunications industry.

The Authority believes that this is a necessary duty for a regulator charged with building the dynamic and competitive communications market which the Government envisages. We are aware that such a duty is given to utilities regulators, and in this respect at least we believe that OFCOM will share a similar set of duties and tasks.

32. Above all, the Authority believes that the organisational structure of OFCOM must be derived from the objectives and the tasks which need to be carried out, and the nature of the industries and markets being regulated. It seems to us essential that, in the design of this new regulatory structure to last throughout the early part of the 21^st century, form should follow function; and the key function is ‘joined-up regulation’.

33. The White Paper reflects (in for example paragraph 8.6.2) the view within Government that there will need to be special provision within OFCOM for the regulation of radio broadcasting, to ensure that radio solutions are applied to radio problems, and the distinct characteristics of radio are not submerged within a television and telecommunications-orientated structure, at least for so long as those distinctions continue to exist. A belief in the need for a separate radio regulator within OFCOM is shared by the radio industry and the Radio Authority.

34. With that in mind, we recommend that OFCOM includes a separate Radio Broadcasting Division to undertake new analogue and digital licensing, with relevant support in respect of frequency management and technical policy associated with that, the supervision of formats and format amendments for ILR stations (‘tier two’ content regulation), the supervision of BBC Radio delivery of its ‘tier three’ content obligations, supervision of the radio sector-specific plurality rules for ownership, and management of Access Radio if this goes ahead. We would also recommend that other horizontal departments within OFCOM, including finance, engineering and spectrum management and content regulation, should contain and retain specific radio expertise. This expertise would be sustained by a formal inter-divisional structure within OFCOM for radio broadcasting. This model might also be appropriate for other vertical divisions within the converged regulator.

35. We do not believe that this needs to be reflected in the new Communications Act as a statutory requirement, but urge that it shall form part of ministerial statements, and therefore be included as clear instructions given by Government in respect of the establishment of OFCOM. Radio remains, and will remain for the next decade, a distinct medium with universal relevance requiring sector-specific attention within any converged regulatory structure.

Radio Authority