Report on the frequency tendering by the Media Council (Part 2)

For this Report, Mertek looked at the frequency bids evaluated by the Media Council between the end of 2011 and Fall 2012, primarily through decisions and documents disclosed by the Media Council to the public. During the period, the Media Council conducted a total of 58 tenders, of which 20 concluded without a result. On balance, then, the authority issued 38 new radio frequency licenses, each for a term of seven years.

Re-tendering of frequencies used by existing radio stations

In our first report, we analyzed those tenders concluded as of the Fall of 2011 which involved new, formerly unused frequencies. By contrast, during the period under review here, four out of five tenders aimed at re-awarding licenses formerly held by existing radio stations. These stations had started operating in the late 1990’s, and most of the licenses expired. The advertisement of these expired frequencies suffered significant delay due to the winding up of the ORTT, the Media Council’s predecessor, and the time required for the new regulations to be phased in. Despite the delay, the stations did not need to go off the air, because the law allowed the authority to issue temporary licenses until the conclusion of the tenders for the same frequencies. These temporary licenses were and have been valid for 60 days at a time, and the authority routinely granted them to those stations that did not wish to have their contract terms amended. At the same time, the delay made life difficult for the stations, since the 60-day license prevented them from signing long-term contracts, and their market position suffered as a result.

The tender announcements

The legal procedure for tendering is set forth by the Media Act, which conceives of the process as one of public administration. The generic provisions are filled with substance by the specific tender announcements, which lay bare media policy objectives and the terms of entering specific markets. Nevertheless, the announcements reveal very little by way of policy considerations in connection with each local market, as the sets of terms and conditions are essentially identical except in the case of a few frequencies in Budapest. The local tenders follow the same logic, the same criteria, and the same expectations. Each tender relies on the same conceptual framework mechanically, without any sign of regional differentiation. Having used the same frequency before is regarded as a plus only with a few frequencies, and then it is only awarded one point out of the maximum available score of 60. In short, there is no indication that the Media Council wishes to pursue the policy objective of giving preference to bidders incumbent in the market.

The operation of new market entrants became less transparent owing to the removal of the master contract text from the tender announcement. Because the bianco contract is no longer disclosed to the public, it is difficult to find out about the content and possible uniformity of the specific contracts that the media authority does sign with providers, and thus to determine to what extent the playing field is leveled in legal terms. This change clearly deserves criticism for obstructing the public scrutiny of the terms of operation binding hopeful media providers and the authority’s decisions affecting those terms. In fact, litigation is in progress over the disclosure of media contracts signed with the authority. Although the first instance action concluded with a ruling ordering the authority to disclose the contracts, a final and non-appealable decision is yet to be passed in the matter.

At the end of the day, we can say that the criteria of frequency tenders originally established in the late 1990’s have been left essentially intact and the overall procedure has not been simplified to any appreciable degree by the media authority as the agency responsible for designing and announcing those tenders at its sole discretion. The only change the Media Council did make to the process, namely the omission of the bianco contract text from the announcement, obviously works against the odds of public control.

Disclosure and transparency

Gaps in the disclosure of the tendering process — a deficiency we have pointed out in the past — continue to exist. Inexplicably for the outside observer, some of the authority’s decisions are available for inspection in their entirety, complete with the attached explanation, while in other cases the authority is content with posting on its web site a brief abstract without the explanation.

Protracted process

Virtually none of the tender procedures were concluded within the legally stipulated deadline. The average processing time was 10 months compared to the four and a half months allowed by law.

Unsuccessful tenders

Whereas only one of the tenders held in 2010-2011 had been declared unsuccessful, in 2012 this became the order of the day. The Media Council concluded more than one third of the tender procedures without declaring a winner citing formal errors, as far as can be gleaned from the available information.

According to the explanations disclosed to the public, these formal objections invariably had to do with pagination, authorized signature, and the editing of officially supplied forms. The focus on formal lapses originated in a court verdict involving Klub Radio. Subsequently, the Media Council declared no fewer than 20 tenders unsuccessful, compared to 18 tenders where no formal deficiencies were identified.

Considerations of media policy

The map of local media

The main question of media policy was whether the media authority would redraw the map of local media or provide an opportunity for incumbent radio stations to continue. The picture that has emerged does not yet permit us to say which approach has prevailed.

Even though the tender announcement stopped short of promising preferential treatment for incumbent stations, the majority of the winners that emerged from the successfully concluded tenders belong to this category. The question now is whether the Media Council will follow the same policy in the tenders relaunched due to unsuccessful first round. Reviewing the completed procedures, once certainly gets the suspicion that the media authority only declared a tender unsuccessful where it was not sure whether the incumbent station should be allowed to carry on.

The market in Budapest

The tender period under review affected one out of two radio stations operating in Budapest. With a total of 14 district and local stations, the market in Budapest seems positively absurd, with hardly a commercial radio station in sight. Theoretically at least, three out of four stations have a community profile and therefore do not pay a media service fee. This imbalance became even more lopsided during the period studied in this Report.

Of the nine frequencies advertised, five involved a commercial license and four a community license. Six of the frequencies were awarded to a winning bidder, while the remaining three tenders were declared unsuccessful, for the reasons explained above.

As a result of these tenders, the radio market in Budapest has been reshuffled to some extent. The talk-news station Inforadio, formerly in the commercial category, continues as a community station using a different frequency. Civil Radio has retained its community status and former frequency. Radio 1, which had previously worked on building a nationwide network, did not win a frequency. With the most valuable frequency in Budapest taken away from it, Juventus Radio must make do with a new frequency of inferior quality. Of the only two new entrant bidders winning a frequency, Click Radio (95.8 MHz) failed to report for signing a contract with the authority within the legal deadline, forfeiting its license. A relative newcomer is the religious station Katolikus Radio, which had been previously relegated to a medium-wave frequency.

The fate of four frequencies remains uncertain: Three tenders were declared unsuccessful, and in one case no contract was ultimately signed.

The displacement of Radio 1, a station that held considerable market prowess, along with the loss of the wide-range frequency by Juventus, formerly recognized as the third “nationwide” radio station, seems to reconfirm the perception that the Media Council does not think there is a need for a major commercial station headquartered in Budapest that could compete against Class FM, the station dominating the market segment alone now that Neo FM is out of business.

Formerly the Budapest frequencies elicited a frenzy of bids. Since then, the number of bidders dwindled, to the point where four of the frequencies advertised in Budapest only received a single bid each. This suggests that the frequency allocation scheme must have been informally predetermined to a considerable degree.

Klub Radio

 Klub Radio’s performance at these tenders deserves special mention, not simply because of the formal lapse in its submission, which the Media Council extrapolated as a central theme, dubbed the “Klub Rule,” capable of disqualifying any bid and thus ultimately of influencing the outcome of all tender procedures, but also because of the station’s special position in the eyes of media policy makers. Virtually the only strong voice of the political opposition in the radio palette today, the Budapest-based Klub Radio had operated a major network that had covered several large regions around the country before the new media regulations entered into force. During the period under review, the station filed 15 bids aimed at retaining its market positions as well as at further expansion. Not only did Klub Radio not win any one of the tenders, but in the second round each tender where it entered the fray was eventually declared unsuccessful. The court reviews of the Media Council’s decisions concluding the tenders for Budapest 95.3 MHz, the central frequency of Klub Radio, led to three final and non-appealable verdicts, each overruling the authority’s decision regarding Klub Radio. Upon receiving the last final court decision, the Media Council turned to the Prosecutor’s Office, claiming this as the only way left for it to comply with the ruling within the confines of public administration.

Summary

During the period under review, the foremost question of media policy had to do with the extent to which the radio market would be reshuffled in the wake of the Media Council’s evaluation of the frequency bids. Would the incumbent stations be allowed to continue, or would the market be opened up for newcomers? These questions cannot be answered conclusively at present, because on third of the tenders were declared unsuccessful. Where incumbent stations reapplied and the tender was concluded successfully, the majority of the frequencies were awarded to these incumbent stations. One third of all the tenders fell into this category. These decisions typically affected small local radio markets. On the other hand, the entire process of tendering could hardly be lauded for a market-sensitive approach. The intent to restructure the existing market was noticeable behind several decisions, particularly in respect of the capital city. The market foothold of radios with formerly nationwide coverage continued to shrink, contributing to the material reshaping of the radio market. In addition to the conspicuously large number of tenders declared unsuccessful, this second period was characterized by protracted processes that dragged out far beyond the legal deadline, as well as by highly variable disclosure practices.

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