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Taxpayers shafted as Classic FM gets licence back for peanuts

No need for an auction, says Ofcom

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The richest commercial radio station in the UK has had its licence renewed automatically - avoiding a competitive auction, and depriving the taxpayer of millions of pounds of cash.

Classic FM station has even seen fees cut significantly to a "nominal amount". Talksport's licence was also renewed under similar terms.

The 1990 Act which permitted the creation of both stations required sealed auction bids for all licence renewals.

Classic FM is estimated to gross £20m per year in revenue for owner Global, but now needs only pay £10,000 per year. More significantly, the previous requirement of six per cent of revenue to paid to Ofcom, a condition called a PQR, has been completely scrapped.

Classic FM was granted the first commercial nationwide radio license in 1990, and started transmissions in 1992. Changes in the 1996 Act saw Classic FM pay over £1.5m a year to the Treasury. For the next five years, the station will return less than £1,000 a month.

The decisions were made by Ofcom yesterday, but didn't merit a press release.

"It's a very crude market intervention that stymies other more constructive developments," a senior radio industry source told us, under condition of anonymity.

The Digital Economy Act of 2010 changed the 1990 law, permitting stations a cheap renewal. The Carter Report that floated the policy cited uncertainty about the future of radio as the justification for the incumbent-friendly change.

Ofcom attempted to justify the move yesterday by explaining an auction wouldn't attract any bidders - so why should they bother holding one?

"Our review has concluded that for a hypothetical new entrant these entry costs would outweigh the potential profits available from broadcasting nationally on analogue in the time period we were considering for the licence valuation," wrote the regulator in a brief explanation. Licensees are obliged to simulcast on DAB.

"Renewing Classic FM's its license back has been driving policy," a senior industry source told us.

"FM isn't going anywhere yet," another industry source pointed out, pointing wryly to Ofcom's mission statement:

"We make sure that people in the UK get the best from their communications services and are protected from scams and sharp practices, while ensuring that competition can thrive."

It's hard to see much evidence of any of that with the cheap return of radio's most lucrative prize back to its delighted custodian. ®

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