ITC 'illegally awarded' licence to Channel 5

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Media Correspondent

The Independent Television Commission illegally awarded the Channel 5 licence to a consortium which did not have enough money, the High Court in London was told yesterday.

The allegation came in a dramatic opening to the judicial review of the ITC's decision to award the hotly contested licence to Channel 5 Broadcasting last October. It failed two other bidders on quality grounds - UKTV and Virgin TV - and New Century Television because it bid only pounds 2m, compared to Channel 5 Broadcasting's pounds 22.002m.

Sir Patrick Neill QC, for Rupert Murdoch's New Century consortium, told the court that Channel 5 Broadcasting had agreed funding to run the channel worth only pounds 206m - made up of shareholders' equity and a pounds 110m bank loan facility - when its own calculations drawn up for the licence application showed that in the most difficult trading condition it would require pounds 307m. When this became apparent, the ITC should have disallowed the bid, Sir Patrick told Lord Justice Henry and Mr Justice Turner.

Instead, it unlawfully encouraged Channel 5 Broadcasting to increase its available funding to pounds 306m after the May deadline for the submission of bids. The shareholders' agreement enabling the enhanced funding was signed in September, 19 weeks after the deadline, Sir Patrick said.

The ITC members were not informed of the substantial increase although ITC rules forbid licence applications to be changed in a manner which could be unfair to other applicants. Channel 5 Broadcasting - which was potentially considering flotation two years into the life of the period - deliberately ignored requirements to fund the worst case scenario in its submission, he added.

"At no point did the ITC as a body address the question of whether it would be unfair to the other applicants to allow enhancement at that date. Had the question been put, there could only have been one answer because such a dramatic change put the business plan in order when it had been in woeful disarray. They deliberately put in a business plan which didn't meet the requirement and 19 weeks later came up with a new document."

Sir Patrick spoke after the judges decided to allow submissions from both UKTV and MCTV to the review brought by Virgin. Earlier, the court had heard that Virgin TV was alerted to Channel 5 Broadcasting's enhancement at a Disney launch party last October.

There Virgin TV's chief executive, Jeremy Fox, began chatting to Greg Dyke, chief executive of Pearson TV, a member of the Channel 5 Broadcasting consortium.

"He was told by Mr Dyke they had funded the application up to pounds 200m, but had had to provide an extra pounds 100m," Anthony Scrivener QC, for Virgin, told the court.

Virgin alleges that Channel 5 Broadcasting's bid was improperly increased, but also that the ITC acted unreasonably by failing Virgin on quality grounds.

The hearing continues today.