Consultation outcome

National commercial digital radio multiplex licences: consultation response

Updated 31 January 2022

1. Executive summary

Following a consultation published in July 2021 on the approach to the future licensing of the two UK national commercial digital (DAB) radio multiplexes, the government intends to make changes to section 58 of the Broadcasting Act 1996 to allow Ofcom to renew the two licences, which are due to expire in 2023 and 2028 respectively, for a further period to December 2035. This change will provide national commercial radio operators with long term certainty and give them confidence to invest in national digital services, which will be beneficial for listeners.

2. Introduction

The government has consulted on the approach to the future relicensing of the two national commercial digital radio multiplexes.

The past decade has seen a marked shift in the consumption of radio. Improvements in the coverage of digital radio networks and investment by broadcasters in new digital services as well as by vehicle manufacturers in fitting digital radios as standard in new cars has benefited listeners. Listening via digital devices is now the primary means of accessing radio services, with recently published RAJAR (Radio Joint Audience Research) figures for Q3 2021 showing that digital accounts for a 65.8% share of all radio listening.

National commercial digital radio stations are broadcast via two national DAB multiplexes, operated by Digital One Limited and Sound Digital Limited respectively. The network operated by Digital One Limited (owned by Arqiva) was launched in 1999 and carries simulcasts of the three national analogue commercial services (Classic FM, TalkSport and Absolute Radio) and 17 other digital services, and reaches around 91% of UK homes. The network operated by Sound Digital Limited (owned by a consortium - Arqiva 40%, Wireless Group 30% and Bauer Media 30%) was launched in 2016 and reaches 83% of UK homes. The two national commercial digital radio multiplexes have become an essential means of distributing national commercial radio services and programme content and have been successful in opening the national airwaves to more commercial radio services and allowing commercial radio to compete with the BBC. Between them, these two networks provide access to 40 free-to-air national commercial digital radio stations.

The Broadcasting Act 1996 paved the way for the licensing of digital radio by creating the structure for digital radio multiplex and station licensing. Commercial digital radio broadcasting services are regulated by Ofcom, which issues broadcasting licences setting out the conditions which apply to licence holders. There are two types of digital radio licence issued by Ofcom: a digital radio multiplex licence^{[footnote 1]} for those wishing to provide a multiplex service nationally or for a given local area; and a digital sound programme licence for those wishing to provide a digital radio service.

The Broadcasting Act 1996 only allows national multiplex licences to be renewed on one occasion if the licence was issued within the first 10 years of commencement of the legislation. Therefore, the national DAB multiplex licence issued in 1999 to Digital One Ltd for two terms of 12 years is set to expire in November 2023. The Sound Digital Ltd (D2) licence, issued in 2016, runs for a single term of 12 years until March 2028. Under existing legislation, Ofcom does not have a power to renew the current national multiplex licences beyond their current expiry dates and would need to offer the licence currently held by Digital One Ltd for a 12-year period through an open competition which would need to take place and be completed by summer 2022.

Our consultation ran from 22 July to 14 September 2021. We sought views on whether the government should make provision to allow national commercial digital radio multiplex licences to be renewed for a further period, and if so, what the length of this period should be. Specifically, we requested views on three options:

• Option 1 - Do nothing: allow the two national radio multiplex licences to expire and be re-advertised through an open competition for a 12 year period by Ofcom in accordance with the existing legislation;
• Option 2: amend the Broadcasting Act 1996 to allow a 12 year renewal for the licence currently held by Digital One Limited and a shorter 7 year renewal for the licence currently held by Sound Digital Limited, to align both expiry dates to a common December 2035 date;
• Option 3: amend the Broadcasting Act 1996 to allow a shorter 7 year renewal for the licence currently held by Digital One Limited and a 2 year renewal for the licence currently held by Sound Digital Limited, to align both with the expiry dates of the local DAB multiplex licences in December 2030.

We also sought views on whether Ofcom should have the power to require a higher level of coverage for national licences (either as a condition of renewal or in relation to a future switchover) or whether this should, as now, be left to market forces; and on whether there should be restraints on future price increases for carriage fees.

The wider business environment for commercial radio has been particularly disruptive and challenging in the past 18 months and is the context in which this consultation has taken place. The COVID-19 pandemic has underlined the important role of national commercial radio as a trusted source of news and information for UK audiences as well as in delivering content to entertain. However, the wider economic impacts due to the pandemic have had a significant effect on commercial radio revenues since March 2020, and there are some signs that this may have accelerated some of the disruptive long-term structural changes facing traditional media.

3. Summary of responses received

The consultation received 10 substantive written responses in total from a range of organisations within the commercial radio broadcasting sector - Arqiva, the current operator of the D1 multiplex; the three largest commercial broadcasters: Global, Bauer and Wireless; and other commercial broadcasters: Sunrise Radio, Panjab Radio, United Christian Broadcasters (UCB), Nation Radio and Like Media and UK DAB Networks, a joint venture between Nation Radio and Ash Elford. The list of organisations which responded can also be found at Annex A and non-confidential responses have been published on our consultation page. We are grateful for all the responses provided.

Overall a majority (six) of the respondents - Arqiva, Global, Bauer, UCB, Sunrise Radio and Panjab Radio - supported option 2: the proposal to amend legislation to allow an automatic renewal of the national multiplex licences. Four respondents - Wireless, Nation Radio, Like Media and UK DAB Networks - preferred option 1: the proposal for allowing the national multiplex licences to expire and Ofcom to re-advertise them in an open competitive bidding process. None of the consultation respondents supported option 2: a shorter renewal of both national multiplex licences to align the end dates with the expiry of local DAB multiplexes in 2030.

3.1 Consultation feedback on option 1

Six respondents did not support this consultation proposal. They argued that several factors mean it would be a more expensive, risky and disruptive option for commercial radio operators, and inappropriate at a time when continuity and stability is more beneficial for commercial radio operators to support a recovery from the impacts of the Covid-19 pandemic.

Specifically, the following points were made:

• taking steps to re-advertise the two licences would be disruptive and involve significant costs, time and management resources being diverted to the application process by the multiplex operator(s), and administration costs and time by Ofcom to manage the process; and given the historic lack of interest in operating digital radio multiplexes from new entrants the resource intensive effort could all be potentially for no change and little benefit to commercial radio broadcasters or listeners, at a time when broadcasters need to focus on rebuilding revenues following the impacts of the pandemic.
• a new bidder would face a very significant constraint because they would have to use Arqiva’s existing national broadcast networks and therefore would in effect have to offer the same or a very similar level of network coverage, as well as have to pay Arqiva fees for access to/use of the network; and therefore a new operator would be unlikely to be able to offer a substantially cheaper price to commercial broadcasters/stations.
• a new bidder proposing to construct a new national digital radio network would face the significant costs of building it and maintaining it throughout the licence period, which would be passed on to the stations being carried, and would require time to build it (as well as the substantial risk of non-delivery of the new network).
• listeners already benefit from a wide range of national stations covering all major music and speech genres on the two national multiplexes, existing multiplex operators have adapted to changing technology by introducing more services in DAB+ on the SDL/D2 multiplex, and new national stations have been introduced by the multiplex operators.
• a risk that a national commercial multiplex licence operated solely by a radio organisation would prioritise capacity for their own radio services on the network and shut out other commercial broadcasters from the market.
• re-advertising the licences would mean that listeners risk losing access to familiar and well-loved stations.

Four respondents supported option 1 and expressed views in favour of allowing the national multiplex licences to expire and for the expiring licences to be re-advertised by Ofcom and awarded after an open competition.

Specifically, these respondents argued that:

• a competitive licensing application process is a good thing, even if it were won by the incumbent licensees, and would drive positive behaviours and result in benefits such as: more affordable carriage fees for stations on the network(s), more stations gaining access to the national networks, greater technical innovation and some improvements to network coverage.
• even if re-advertising the licences did not result in a new entrant, a competitive process could provide an opportunity to seek stronger commitments to improve costs, coverage and access for new stations from the incumbent multiplex operator(s).
• if the national multiplex licences were to be re-advertised competitively, one respondent - Nation Radio - indicated that it would be interested in bidding. Nation Radio believes that it has built experience in running local DAB multiplexes and has multiplexing capability through a subsidiary which would enable it to bid to operate a national multiplex.

3.2 Consultation feedback on option 2

Six industry respondents were strongly supportive of option 2: a 12-year renewal for the licence held by Digital One Limited and a 7 year renewal for the licence held by Sound Digital Limited, to align both expiry dates to December 2035. In support of this option respondents argued that:

• DAB radio is forecast to remain an important platform for listeners to consume radio programme content into the late 2030s.
• a longer term renewal for the national networks would provide broadcasters with long term certainty for their business over their national DAB carriage and in turn this will give them confidence to continue to invest in their national digital services, which will be beneficial for listeners.
• a renewal to 2035 provides national stations with stability.
• Arqiva asked DCMS to consider a 12-year renewal of the Sound Digital licence because there is no real need to align the end date of these licences, based on the expectation that DAB will be relied upon throughout the 2030s. Wireless are unclear why the SDL/D2 licensee would not be offered a 12 year renewal.
• although they preferred a competitive advertisement, Wireless argued that Digital One Ltd should be required to extend network coverage in return for an automatic renewal of its licence and transparency in capacity allocation and pricing of capacity.

Four respondents did not support option 2. They argued that for the D1 multiplex an automatic renewal of the licence would maintain the incumbent operator’s position and this would not incentivise the multiplex operator to innovate or improve costs or coverage. Nation Radio stated: “…it offers little incentive to the incumbent multiplex operator to attract new entrants to radio broadcasting or improve coverage…”. Wireless stated that it wasn’t clear how a renewal for the incumbent operator of the D1 multiplex rather than holding an open competition for the licence would better support a wider transition to digital. Like Media expressed a view that a renewal of multiplex licences would have the advantage of maintaining consistency for operators and listeners; but that maintaining the position of the current D1 licence holder would be detrimental for the sector in the long run.

3.3 Consultation feedback on option 3

There was no support from any respondents - either those who favoured an automatic renewal of the licences or those who preferred re-advertising the licences in open competition - for option 3 in the consultation: a shorter renewal of 7 years for the D1 licence and 2 years for the SDL licence to a common end date of December 2030, to align with the expiry of the local commercial DAB multiplex licences. Respondents could see no advantages in reorganising radio spectrum for the two national networks and 56 local commercial digital radio multiplexes at the same time. The common view was that this type of wholesale change would be unnecessarily disruptive for commercial radio, disruptive for listeners and difficult for Ofcom to carry out. Panjab Radio stated that providing clarity through until 2035 is more helpful than setting the date at 2030.

3.4 Consultation feedback on coverage improvements

Feedback on the issue of coverage improvements was mixed. Some of the respondents in favour of allowing a renewal of the national multiplex licences argued that any future coverage improvements should be a commercial matter for negotiation between the radio stations and the multiplex operators, since as now the costs of any increased coverage would be passed on to service providers. Bauer commented: “the reality is that any coverage obligations on the multiplex operator are in fact obligations on the radio services they carry, as any increase in cost to the multiplex operator from additional transmitters is simply passed on (plus a profit margin) to the radio station”.

Whilst a renewal was not their preference, Wireless argued that Digital One Ltd should be required to extend coverage of the D1 network in return for an automatic renewal of its licence, but without passing on excessive additional cost to broadcasters/service providers. In the view of other respondents who favoured an open competition for the D1 multiplex licence, the network’s future coverage should be comparable to existing levels and expectations, if won by a new entrant or by the incumbent operator. Nation Radio stated: “We would expect that to build the adoption of the DAB platform amongst listeners that coverage of any newly licenced DAB multiplex would need to be broadly the same or superior to that of the incumbent multiplexes to provide a satisfactory listening experience”. Like Media would like to see coverage of the SDL/D2 multiplex increase to be a closer match to the D1 network.

3.5 Consultation feedback on future carriage fees price restraints

There was no consensus in the feedback on the issue of whether there is a need for price controls on future increases in carriage fees or whether it should be left to market forces. We received no direct comments from respondents on the merits or disadvantages of the price mechanism options outlined by DCMS in the consultation document.

Arqiva and Global did not see the case for price control protections and felt it should be left to the market - arguing that existing flexibility with commercial negotiation works and Ofcom already has broad powers and can act on these if it believes there is a problem. Global stated that “direct price regulation is not necessary in Global’s view. Service providers are generally large radio groups who are capable of negotiating their own contracts. Mux operators are already under obligation to promote fair and effective competition and service providers can go to Ofcom if they think mux operators are acting unfairly.”

UCB also preferred the ability to negotiate - “though a rate card approach has certain advantages, the freedom to negotiate outside of that rate card continues to be invaluable.” Panjab Radio also mentioned flexibility of being able to negotiate - “Back in 2009, Panjab was on D1. There was a commercial negotiation on price and D1 showed flexibility. Also, when Panjab wanted to break the contract and came off, a fair settlement was sorted out and there wasn’t a termination payment (which there could have been). Similarly with SDL Panjab did a deal and Arqiva was flexible and changed some of the contract terms. When Panjab came off SDL, it was dealt with fairly by Arqiva in difficult circumstances”.

Nation Radio and UK DAB Networks thought that a competitive relicensing process would drive more competitive terms for broadcasters. UK DAB Networks stated: “This question really emphasises why it is important that the two national commercial DAB multiplexes are readvertised. In a competitive application format, applicants will be incentivised to offer competitive terms.”

Two smaller broadcasters (Like Media and Sunshine Radio) stated that there should be some form of price protection for smaller stations. Like Media: “Carriage Fees differ widely between service providers currently. I believe a rate card agreed with Ofcom should be decided, and then any yearly increase capped at RPI. This is to provide a fair competition to all service providers”; and Sunshine Radio: “I think there should be a fee cap mechanism or a subsidised fee potentially, because if just left to market forces, Stations like Sunrise Radio will be unsustainable as a National radio station, which effectively will reduce choice for the public”.

Wireless thought that the current multiplex operator should publish a clear process for how capacity will be allocated in the renewal terms if there is a rollover of the D1 multiplex licence and that pricing of capacity on the network should be fairly equalised among the service providers.

4. Government’s response

We have fully considered all of the consultation responses.

4.1 Response on Option 1

In terms of option 1 (the do-nothing option), we have carefully considered the feedback. Those in favour of this option primarily argued that competition for national multiplex licences is a good thing and that a number of benefits for service providers and consumers would arise from a competitive re-advertisement process. However, respondents only provided limited evidence and examples to support these statements.

We recognise that there could be potential benefits associated with re-advertising the national commercial digital radio multiplex licences: it could provide an opportunity for commercial radio to review the best way of organising the networks and consider alternative arrangements for securing commitments on DAB+ (services have already been introduced on the SDL multiplex and some local multiplexes) or access to more stations or improvements in coverage.

We acknowledge that were a new and credible bidder for the national licences to emerge this could incentivise the incumbent operator(s) to improve their offerings. However, given the historic lack of interest and barriers to entry we are not convinced that there would be a strong level of interest in bidding for either of the national multiplex licences from external non-radio new entrants, were these licences to be re-advertised. A new entrant would, because of spectrum constraints and cost, have to operate effectively the same network services using a majority of sites that Arqiva currently uses. As a result the scope to invest to improve services, reduce costs for stations carried and generate profits over the lifetime of the licence would be limited.

We have noted other potential disadvantages associated with re-advertising the national multiplex licences cited by respondents. The government generally agrees with the view that to re-advertise the licences would involve additional costs, time and management resources being directed into the application process and this risks the imposition of added burdens on the industry at a challenging time for commercial radio. The government is aware of the historic low levels of interest in operating digital radio multiplexes and has noted the argument made by respondents that there is a real risk of a competitive application resulting in little or no change. As previously indicated, the government has noted the view put forward about the high barrier to entry to operate a national multiplex for any new bidder because of the requirement to either use Arqiva’s existing transmission network or build an entirely new national digital radio network. We also believe that the argument that both of these routes to market would involve significant financial costs and risks for a new entrant carries weight. It is difficult to see how a new operator could offer significantly better terms to national broadcasters or better coverage for listeners. After careful consideration, on balance, we believe the disadvantages outweigh the advantages with respect to this option and agree with the arguments that this would be a more expensive and disruptive option for commercial radio at the current time.

4.2 Response on renewal options 2 and 3

With respect to option 2, the responses we received clearly set out a range of important benefits of renewing the national multiplex licences, primarily giving commercial broadcasters the long-term certainty to plan and develop services as radio’s transition to digital continues. We agree that this is a particularly important consideration given the challenging business environment facing commercial radio broadcasters in recovering from the negative impacts of the COVID-19 pandemic, with the dependence on advertising, and in responding to long term structural trends such as the increased competition from online music streaming services.

We have noted the lack of support from respondents - either those in favour or against automatic licence renewals - for option 3 (a shorter renewal of 7 years for the D1 licence and 2 years for SDL licence to a common end date of December 2030, to align with the expiry of the local commercial DAB multiplex licences) and the reasons behind the views: wholesale change of radio spectrum for the two national networks and 56 local commercial digital radio multiplexes at the same time would be unnecessarily disruptive. On balance we agree with respondents that a short-term renewal is less well suited to meeting government objectives.

In terms of the length of time that the national multiplex licences should be renewed, we have taken into account the feedback from industry which indicated that a longer renewal, of 12 years for D1 and 7 years for SDL to 2035, was clearly preferable as this would deliver several important benefits: certainty to the industry and listeners and the minimising of disruption and costs, while maintaining the focus within industry in the direction of digital. This longer term support is consistent with the findings in the recently published joint industry and government Digital Radio and Audio Review, which indicates that free-to-air digital (DAB) radio is forecast to remain an important means by which listeners consume radio programme content through to the late 2030s. We agree that this approach supports the government’s policy objective of working towards a digital future for radio and supporting industry through this transition.

4.3 Our conclusion with respect to the 3 options

Having considered the responses to the ‘do nothing’ option 1 and renewal options 2 and 3 we believe that on balance there are stronger arguments that support the long-term renewals of the two national commercial multiplex licences. They are by no means conclusive but in the main we agree with the views expressed that adopting this approach to the future licensing of these important platforms for commercial radio will provide more clarity and security for the industry (including for advertisers and investors), while maintaining the momentum towards digital. This decision would give additional certainty on the future licensing of this key platform for commercial radio, which we have noted is important given the challenging business environment facing commercial broadcasters in adapting to the disruption from online competitors and recovering from the impacts of the pandemic.

4.4 Response on coverage

We have carefully considered the feedback from respondents on the issue of seeking a commitment on coverage improvements to the national commercial DAB networks as part of either a competitive bidding process or an automatic renewal. Given the maturity of digital radio and the existing levels of build out of the commercial radio networks, we are minded to agree that it is primarily a matter for the multiplex operator and service providers to determine, unless and until there is a decision on a future switch-off of FM services. We recognise that any changes in the coverage footprint of these networks must be commercially viable for the stations carried. Therefore we have decided that we will not include any provisions in relation to mandating increased levels of coverage for either the D1 or SDL (D2) networks in the Legislative Reform Order.

4.5 Response on carriage fees

We have carefully considered the feedback from respondents on whether there should be restrictions on the ability of the national commercial DAB multiplex licence holders to increase the charges levied on the stations carried on the networks. We acknowledge that larger commercial radio broadcasters have a stronger position of market power from which to negotiate the terms and length of carriage arrangements with the multiplex operator and that they wish to retain that freedom. We recognise that smaller broadcasters do not necessarily have the same ability to leverage market power in a negotiation with a national multiplex operator and that some would ideally like some form of protection on future prices and that there are existing powers for Ofcom to intervene. No strong case was made to create a mechanism to limit any future carriage fee increases by national multiplex operators. There are existing arrangements for services to use if they have a complaint about what they consider to be unfair treatment by a multiplex operator and in the absence of strong representations otherwise from the sector we have therefore decided not to include any provisions in relation to restricting rises in future carriage fee prices in the Legislative Reform Order.

5. Next steps

In terms of the next steps, in the consultation document we indicated that if the government decided to proceed with option 2 or option 3 we would carry out a second consultation for the purposes of section 13 of the Legislative and Regulatory Reform Act 2006. However, we now consider that the consultation published on 22 July 2021 satisfies the requirements of section 13 noting that any further consultation would involve a consideration of exactly the same proposals as already consulted upon. We have therefore concluded that a further consultation is unnecessary and that the responses provided to the consultation we have carried out have given us sufficient evidence to proceed with a Legislative Reform Order to implement the government’s conclusions set out in this response.

If you have any further comments about the consultation process or this response document, please contact us by 15 January 2022. Our preferred method is by email at nationalmultiplexconsultation2021@dcms.gov.uk.

Subject to the necessary approvals, the government will now proceed to make an amendment via a Legislative Reform Order to the relevant legislation – namely section 58 of the Broadcasting Act 1996 – in order to allow Ofcom to carry out a renewal of the D1 national commercial digital radio multiplex licence for an additional 12 years and a renewal of the D2 national multiplex licence for another 7 year period until December 2035.

6. Annex A: List of organisations that provided a written response

• Arqiva
• Bauer
• Global
• Like Media Group
• Nation Broadcasting
• Panjab Radio
• Sunrise Radio
• United Christian Broadcasters (UCB)
• UK DAB Networks
• Wireless Radio

1. A radio multiplex licence holder is responsible for arranging the transmission of services and for contracting with radio stations that want carriage on the network. ↩