Regulations get the better of ambitious UTV chief in Cork radio licence bid

John McCann's appointment as managing director of Ulster Television in October 1999 was warmly welcomed. He made it clear that he would put his stamp on the company by giving it a new focus.

After 40 years as operator of the Independent Television franchise in Northern Ireland, UTV had grown into a solid but unexciting company that did nothing more adventurous with its profits than hand them back to shareholders in the form of special dividends.

Mr McCann quickly nailed his colours to the mast, promising that UTV would become a significant player in the all-Ireland media market. Within six months of his appointment UTV acquired Direct Net Access the largest Internet service provider in Northern Ireland for £4.4 million sterling (€6.95 million). Rebranded UTV Internet, it was launched as an all-Ireland ISP.

This was followed by a £32.5 million bid last November for County Sound, the holder of three radio licences in Co Cork. The new pro-active management style - combined with buoyant advertising revenues - was just what the market wanted and UTV's shares rose steadily under Mr McCann's stewardship from around 200p sterling at the end of 1999 to 350p sterling by the end of last year.

This week things do not look so good. The shares remain at around 350p, but advertising revenue across the ITV network are taking a turn for the worst and hitting the valuations of the ITV companies. More significantly, Mr McCann's plans to develop into an all-Ireland media concern seem to be unravelling.

The Independent Radio and Television Commission ruled on Monday that UTV's bid for County Sound could not go ahead. The reason given was that the takeover would violate the IRTC's policy of having strong local representation in the ownership structure of regional radio. This includes a policy of not letting any existing media group hold more than 27 per cent of a radio licence.

Blame for a slump in advertising cannot be laid at Mr McCann's door - Ulster could in fact do better than many of its ITV peers - but he has some questions to answer over the County bid and his expansion strategy in general. The most obvious one is why he bid for County Sound when he was aware that the IRTC would not allow it under the existing rules.

Mr McCann was not available for interview this week, but his spokesperson, Ms Orla McKibbin explained. "We believe that sufficient safeguards exist within the contractual arrangements between the radio stations and the IRTC to protect the ethos of the service. Obviously we had hoped to convince the IRTC of this argument," she said.

UTV was reluctant to enter a debate on the County Sound situation this week as it had not received details of reasoning behind the IRTC decision. The company is also keen to avoid a high-profile spat with the commission as the statement last Monday did hold out a glimmer of hope. The body, chaired by Mr Conor Maguire, signalled that it might review its policy on the ownership of radio licences at its next meeting in April.

Under these circumstances Mr McCann will be tempted to adopt a softly-softly approach and try to see if he can come to a compromise.

The owners of the other commercial radio licences in the Republic will be watching events with interest as the IRTC ruling appears to severely limit their ability to realise the value of their investment.

UTV could seek a judicial review of the decision pointing out that Granada - another ITV company - has been allowed acquire 45 per cent of TV3, the Republic's commercial television station. The key difference is that UTV is considered an existing Irish media operation because it reaches 70 per cent of homes in the Republic either directly via its terrestrial broadcast from the North or via cable in the major towns and cities

If Mr McCann cannot salvage the County Sound deal it will be a major set back to his all-Ireland ambitions and his other initiatives will surely come under scrutiny. UTV's venture into the Internet is already being viewed more soberly in the wake of the dot.com crash.

Analysts still take a positive view of the deal, pointing out that it was not a large deal and although it is loss-making, UTV Internet does generate revenue. In addition, the business is focused on the small and medium business customers who are potentially the most lucrative customer. The company has also begun offering telephony services as part of the package.

UTV remains "absolutely" committed to its Internet strategy, according to Ms McKibbin. "We are currently in the process of recruiting more staff to deal with growing demand for out services. We have just launched two new unlimited Internet packages which include call charges in Northern Ireland for both residential and business customers. We plan to offer both these products in the Republic as soon as regulations allow," she said. Once again the Republic's regulatory regime has stymied Mr McCann's ambition and given his limited success so far, he must be wondering if trying to become an all-Ireland player is worth the effort.

With the exclusive rights to the third television channel in Northern Ireland, a number of strategic shareholders and network agreements that render it relatively safe from takeover, perhaps UTV would be better sticking to the knitting - which is after all a very strong business.

The company is expected to announce profits for last year of £26.6 million sterling on a turnover of £41 million. The profits include £13.4 million for the sale of its interest in a satellite business. UTV's strong commitment to local news has allowed it achieve the highest market share of any ITV station.

Despite general pessimism about advertising, UTV's revenues are expected to grow by almost 5 per cent, according to Merrill Lynch.

Standing still is not an option, says Ms McKibbin. The company has to expand in Ireland to compete against British and international peers. "It's strong business moves which will move our company forward by ensuring we offer the full range of communications services consumers require as this market becomes even more competitive," she explains.

Defenders of Mr McCann's strategy point out that nothing he has attempted to date has been over ambitious or required any significant expenditure. More significantly they have not damaged the core television business.

The same could not be said of Mr McCann's most daring move yet. UTV has joined a consortium including BSkyB to bid for franchise to supply news to the ITV network. UTV has 20 per cent of the consortium and is equal partner with BskyB, the US broadcaster CBS, the financial information company Bloomberg and the production company Chrysalis.

Few details of the bid - which was announced in late January have emerged. The present contract - held by ITN is worth £200 million sterling and expires at the end of next year.

Shareholders must hope Mr McCann has more success expanding in Britain than he has had at home.