Legislative Reform (Further Renewal of Radio Licences) Order 2015
The Earl of Courtown
That the Grand Committee do consider the Legislative Reform (Further Renewal of Radio Licences) Order 2015.
Relevant documents: 1st Report from the Regulatory Reform Committee
The Earl of Courtown (Con)
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 and 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.
Lord Stevenson of Balmacara (Lab)
My Lords, I thank the Minister for the quick transition from department to department, the fluency with which he adopts his new brief and the quality of his representation which I have much enjoyed.
However—there is always a however—the reason for this legislative reform order, which is an interesting choice of vehicle for the process, although I do not disagree with it, is because the previous coalition Government and this Government are shooting themselves in the foot on this matter. There would not be a problem if the Government would face up to the fact that what is required is an early and specific date for digital switchover. That would drive the responsibilities of commercial and public service broadcasting and would build on the very successful change that has already happened in the automotive industry from FM and analogue radio to digital radio. The huge majority of new cars sold in this country now have digital radio.
It is all there for the taking. Covered in glory, crowned in his new raiment and wearing the arm of the digital reformer that at heart he surely is, the noble Earl could rise from his seat and proclaim to the world that at last there was a decision from a department not known for giving many decisions— or if it does, they are not very good ones—and we could all get back to normality. Is it not true that the emperor has no clothes and that this is a stop-gap measure? Choosing to extend radio licences in the commercial sector for five years—we are talking about three national radio stations and more than 60 local radio stations, which is a fair whack of the radio stations in this country—is simply going to repeat the uncertainty and chaos that has bedevilled us over the past five years and we will have to be back here in five years’ time extending this yet again. Who knows what we will do the next time? Will we be standing here suggesting that we just give them a permanent licence to print money, a permanent licence for radio broadcasting in order to continue to serve, I suppose faithfully, the 80% of people who say they are satisfied with what they have? I do not know, but the Government are making a mess of this and they ought to ’fess up and set a date, even at this late stage, which will give everybody a chance to work together to make it the success that the television changeover was.
Having said that, I enjoyed the document that was provided, and I thank the officials for it. It is one of the best I have seen in terms of explaining what the issue is and of setting out the context in which the decision has been reached. I do not agree with a lot of things said in it, but that does not take away my admiration of the way in which it attempts to be as transparent as possible. I recognise that and I am glad it is being minuted. Too often these things are just passed over.
I have five issues that I want to log at this stage. Our feeling on this side of the Committee is that this is the wrong way to go. We should set a date for digital switchover, stick to it and put all our effort into making that a success. If we are not going to do so, the proposal made is probably the least worst of the options presented.
First, will the noble Earl be a little more transparent than he has been about what will happen if there is no switchover by 2021? The order is effectively a five-year pause in a process that has an ineluctability about it. Will he give us any idea about what he thinks will happen in 2021? A lot of the evidence from the consultation meetings reflected on the fact that the worst thing for those involved in this area is uncertainty. While they will get certainty now as a result of the order, it will be for only a limited term. Many will have to think very hard about their business plans and whether they will extend beyond 2021.
Secondly, I am not at all clear that the explanatory document is right in suggesting that the issues that have swayed thinking on this were based on the possibility that, by advertising these licences now, there would be a churn, fuelled mainly by competition, that could be a stipulation on the product that comes out of the radio system as a whole. Those are my words, not exactly how it is put in the document. The Government—and the Opposition, too—believe that competition is a great spur to creativity. If we are interested in a broader and more successful creative economy, surely the right thing to do is to seek all the opportunities we have for competition, not to avoid them. Here we have an option where, although it would have been extra work for Ofcom—poor Ofcom—it could, in a reasonably short period of time, have advertised and received submissions from those who currently have licences and those who want them, in order to try to redraw the map of radio as we currently have it.
The document reflects a failure of the process. It says:
“Whilst there is little to no quantitative evidence on how many, and which, new entrants, might bid for any re-advertised licences, research by Value Partners demonstrated anecdotally that, should these licences be re-advertised, there would be some interest in them from new entrants particularly for the national and large city licenses”.
So we have some evidence that there would be interest in the larger franchises—even in some of the local ones. That would have provided some change. The document goes on to explain that that might have been about 10%. A 10% increase in competitiveness and creativity is not to be sneered at. If we had that in other industries we would be quite pleased with it. However, the document—signed off by Ministers—says:
“We do not believe that the hypothetical benefit to listeners and industry of a small number of new services outweighs the cost to the wider industry and to listeners of a wholesale re-advertisement process. We therefore consider that, taken as a whole, the provision in the draft Order strikes a fair balance between the public interest and the interest of any person who might be adversely affected by it”.
Not to readvertise is quite a big decision. I hope the noble Earl will not take it wrong when I say that this bit is a bit thin. We could have had more evidence. He could have sent this document back to officials and said, “I think if I’m going to stand up here and try to defend this against the fearsome Lord Stevenson, I need better evidence than just simply saying ‘anecdotally’ and ‘on balance’”.
I mentioned my concerns that some of this decision has been driven by worries that Ofcom might be troubled by having to do all this work. Ofcom is, of course, a body that covers most of its costs by recouping them from those concerned. Therefore, it is not a cost issue, but a volume or process issue. That is really in the hands of government. Again, it is infelicitous to blame Ofcom, which might be too busy to do this, for a decision that is being taken for different reasons. I would be interested to hear the noble Earl’s responses on that.
If we are not minded to support competition and creativity, we are worried about poor little Ofcom and we are not concerned about having to do this again in five years’ time, what are the other issues? There are two things I want to mention. The first relates to the paper provided in support of the LRO, which goes through the things that Ministers must decide. One of the things that Ministers must decide, as I am sure the Minister is aware, is whether or not the provision is of constitutional significance. The Government cannot be serious about this, surely. We are talking here about a range of diverse views and opinions; the ability of people up and down the country to receive news, comment and opinion; and the freedom of the press, independence and plurality. For the document to say the provision is not of constitutional significance does not bear scrutiny. I really think that is something that the Government should think very hard about. If they do not have that view about commercial radio on a national basis, why are they bothering? They may as well just give operators’ licences in perpetuity because it is obviously not important enough for them to be concerned about. I disagree. I think this is really important, and as part of our understanding of how the constitutional process works we need the contribution of a free and independent press, including radio and television, and a plurality of voices in order to make good decisions about that.
My final point is about the consultation process. There are many good things about the document but the best thing is the fact that at last we see some of the notes from the various meetings that have been held. Reading these through, there is just a slight feeling that we were talking to the establishment rather than the wider context. I did not see much there from people who might have been considered to be applicants for radio licences. Obviously, we might not know who they are but looking at the lists of people who were invited to these consultation meetings in Edinburgh and London, they were largely the establishment of radio. Again, looking at the written responses, we did not get much of a range of the general public. There were one or two freelance media consultants, I note, but not very much from the wider public. The Minister praised Radiocentre for supporting this proposal. Actually, it did not support the proposal in its evidence; it supported option 3, not option 2. It subsequently said that it supports option 2 and wishes it to go through—it would, wouldn’t it? It is involved in part of this process.
But enough from me—we are faced with a fait accompli in this matter because without a digital switchover date there is not much we can do about it. But I hope these points might be considered.
The Earl of Courtown
My Lords, I thank the noble Lord, Lord Stevenson, for his comments. Although he had concerns, I think he was generally supportive of the move. I do not want to put words in his mouth.
Lord Stevenson of Balmacara
I said that we are facing a fait accompli, which is certainly not the same thing as being supportive.
The Earl of Courtown
I withdraw my remark. I also thank him for his congratulations to the officials in the department on the work they have done and the document that he received.
The noble Lord mentioned a number of different points. Once again, if I do not cover them all, I will ensure that I write to him. He mentioned a number of points relating to when the Government will make a decision on when the switchover will actually take place. He felt that it would be far better if we made a firm decision on that. Our position on the switchover decision remains the same. A decision about the timetable for a future switchover will be considered only once the listening and coverage criteria have been met; for example, when at least 50% of all listening is through digital, national DAB coverage is comparable to FM, and local DAB reaches 90% of towns. The noble Lord also asked when that stage will be reached. According to the radio industry source, on current trends digital listening should reach the 50% threshold sometime in late 2017 or 2018. We have always linked switchover to listener take-up and that has not changed.
The noble Lord also commented on the research commissioned from Value Partners and its findings. The research we commissioned on the various options for addressing the expiry of analogue licences was extremely useful as a starting point for a more detailed consideration of the future of radio licensing. However, we believe its conclusions are only partially developed, particularly when it comes to assessing the level of interest there will be around contesting commercial analogue radio licences in the open market. We concluded that the wider disruption caused by a major licensing round would outweigh the benefits of new entrants to the market. There is scope, as the noble Lord mentioned, for new entrants, through acquisition of existing stations or the development of services on DAB online. The launch of the second national multiplex in March 2016 will open the way to new providers coming into the UK radio market.
The noble Lord also asked why we are not setting a firm date for 2022 or 2023. We have always said that a switchover must be listener-led. If progress with listener take-up of digital radio continues, it is quite possible to envisage a scenario where a switchover takes place in the early 2020s, although the exact timing and process is something that will need to be carefully considered by the radio industry and the Government. I stress that we will not be in a position to commit to a switchover unless or until listeners are ready.
The noble Lord also mentioned the situation of smaller radio stations following a switchover. The Government recognise the vital role that local stations play in supporting the communities they serve. That is why we have always said that, in the event of a future switchover, part of the FM spectrum will be retained for smaller, independent local and community radio stations for as long as it is needed. At the same time, we recognise that some smaller stations want more choice in terms of broadcasting on the DAB platform and are concerned about being left behind as more radio goes digital. That is why DCMS has provided £500,000 to Ofcom to support further feasibility work on small-scale DAB solutions to enable smaller stations to broadcast on digital.
The noble Lord, Lord Stevenson, also asked why we are afraid of an open licence competition. We agree that there is a difficult balance. Stations can start on digital and online and broaden the market that way. He also drew attention to Ofcom as a resource that could undertake a licence reapplication process. Not at all—relicensing will create a period of instability for radio and this will make a future switchover decision harder.
The noble Lord, Lord Stevenson, also said that the subject of the order is not of constitutional significance. That is why we have opted for the smallest possible change: a five-year renewal. The scrutiny committee of both Houses, as I said, agree that it is not of constitutional importance. We are not seeking to restrict access to news or radio. I thank the noble Lord for his contribution, all the same. He certainly raised a number of important points. I commend the order to the Committee.