My Lords, the effect of this order will be to allow the holders of certain types of analogue radio licences to renew those licences for a further five-year period. The changes cover the three national analogue radio licences—the national FM licence held currently by Classic FM, and the two AM national licences held by Bauer, for Absolute Radio, and UTV, for Talksport. All three licences were renewed in 2011 under Section 104A of the Broadcasting Act, and local licences were renewed under Section 103A of the Broadcasting Act; they include some names from the list. For stations that have not yet had their licences renewed under Section 103B or Section 104AA, the net effect is to substitute the seven-year licence renewal period introduced into the Broadcasting Act by the Digital Economy Act with a 12-year period.
The measure meets the tests set out in the Legislative and Regulatory Reform Act 2006 and has been approved by the Lords committee and by the Regulatory Reform Committee in another place as being appropriate for a legislative reform order with the affirmative procedure.
In all, around 60 commercial analogue licences, including the three national licences, are due to expire between 2017 and 2021 and will benefit from this measure, though licences that expire after that date will also benefit from the change. This is a change that is strongly supported by Radiocentre, the Commercial Radio Companies Association, and most of the radio industry. Before I get into the detail of the measure, it is probably worth me taking noble Lords through the background to these proposed changes.
In 2009, the previous Labour Government set criteria for a future switchover of digital radio in their Digital Britain report. Their criteria were that DAB coverage should match the coverage of national and local services in analogue, as the case might be, and that digital listening should reach 50% of all radio listening. In July 2010, the coalition Government adopted these criteria.
To facilitate a future switchover, the Labour Government included in the Digital Economy Act 2010 various measures to facilitate a future switch-off of analogue radio services. They include providing Ofcom with the power to terminate analogue radio licences with a minimum of two years’ notice. A key measure in the migration to digital radio by encouraging commercial radio to continue to support the development of DAB was the new powers for Ofcom to grant licence renewals for FM and AM stations. The effect of these changes was that radio stations licenced on or after 8 April 2010, or which had already been renewed for 12 years under Section 104A or Section 103A of the Broadcasting Act 1990, were able to apply to Ofcom to renew their licence for one further period of seven years. To qualify for the renewal, licensees were required to simulcast—that is to broadcast on analogue as well as digital—the service on an appropriate DAB multiplex.
In July 2010, the coalition Government launched the digital radio action plan. The purpose was to bring together the various interested parties to help drive uptake in digital radio. Through this process, a number of key barriers to radio’s transition were dealt with. First, the issues surrounding limited DAB coverage
have been tackled: the BBC, Government and commercial radio agreed to support investment collectively to extend local DAB coverage from 72% in 2013 to more than 91% by the end of 2016, so matching the existing coverage of local commercial FM services.
Secondly, through the digital radio action plan real progress was made on cars. In 2010 fewer than 5% of new cars had DAB installed as standard. Through the collective efforts of the Society of Motor Manufacturers & Traders and the radio industry, almost 75% of new cars now have DAB radios fitted as standard—a figure we expect to increase to close to 100% in two years. Some 20% of radio listening in cars is now to digital.
However, even with this momentum, it was clear by December 2013 that while steady progress had been made it was not the right time to commit to a radio switchover for the UK or to set a firm or indicative timetable for a future switchover. Building on the momentum created by the action plan in 2013, the Government announced a package of measures to support UK radio’s transition. This included a £7.75 million commitment to extend the local DAB network to match current commercial FM equivalents, funding for feasibility work by Ofcom to help more small stations go digital, support for the radio industry’s digital radio tick scheme and efforts to accelerate DAB car conversion.
However, a consequence of the Government’s decision in December 2013 was that the licences of more than 60 radio stations renewed under the 2010 Act’s provisions will expire between 2017 and 2021. This is before the date when a switchover will be possible. It is this issue that the order seeks to deal with. At the time that the Digital Economy Act 2010 was passed, the Government and commercial radio anticipated that a timetable for switchover could be set as early as 2015 and that, with good progress, a switchover might even be completed in 2017 or 2018. The proposed seven-year duration for FM and AM licence renewals in the 2010 Act reflected that expectation. However, the reality is that the assessment made in 2009 and 2010 was too optimistic.
The Government strongly support a digital future for radio and want to ensure that policy continues to support the investment in extending choice and services. In November 2014, we launched a consultation to look at the issue and set out three options. First, there was to do nothing, not to legislate but instead to allow licences to expire and to be readvertised in the usual way by Ofcom. Secondly, we could allow the renewal for a further five-year period of licences renewed under Section 103B and Section 104AA of the Broadcasting Act 1990 and for 12 years for stations that had not yet been renewed under those sections. Finally, we could allow the renewal of licences for a longer period of time not specified above.
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Having fully considered all the consultation responses, both written and oral, we concluded that option 1, allowing licences to lapse, could impose significant costs on commercial radio at a time when we are trying to maintain certainty of direction and encourage the sector to maintain investment in DAB. As we set out in the impact assessment, our estimation is that
these costs are likely to outweigh any potential benefits of allowing licences to be readvertised. More importantly, this option would run the risk of sending mixed signals to the radio industry about the future transition to digital radio at a time when it faces challenges from online aggregators such as Deezer and Spotify.
While there are some merits to option 3, a longer renewal period, including that it would provide licensees with absolute certainty until the point of a future switchover, we believe it would be a fundamental change to the regulatory framework for commercial radio. As noble Lords will recognise, this is something which requires much more detailed examination, and the Government announced in October that we and Ofcom have started work on that. In our view, allowing an extension for a further five years, which is option 2, is the best approach to support the policy objective of working towards a digital future for radio and supporting industry through this transition. In particular, it maintains the incentives for commercial radio to invest in digital radio and develop new services.
We believe the analogue radio licence extension set out in the order strikes the most effective balance between addressing the issues arising from the slower than expected digital radio migration while at the same time reducing the burdens on commercial radio that would otherwise arise if no steps were taken. I beg to move.