New Century Television, which also includes Granada Television, Polygram, Andrew Lloyd Webber's Really Useful Company, TCI and the international bank Goldman Sachs, bid £2m for the 10-year licence.
UK TV Developments, a surprise, late contender led by the Canadian broadcaster CanWest and SelecTV, the British independent television producer responsible for Birds of a Feather, topped the bidding with £36.3m.
Two consortia, one led by Pearson and the other by Virgin, both offered £22,002,000.
Under the terms of the 1990 Broadcasting Act, the Independent Television Commission is obliged to award the licence to the highest bidder, provided it meets programming requirements laid down by the ITC and has a viable business plan. Should the commission rule out UK TV's highest bid, it would then ask Virgin Television and the Pearson consortium to submit a further cash bid.
A New Century spokesman insisted that its offer was "very serious", adding that it would have been "irresponsible" to go any higher. "We have submitted very detailed information and plans for an extremely high quality programme schedule."
Richard Devereux, chairman of Virgin Television, described the results as "one of the bizarrest outcomes to any bidding process ever. We don't consider the game to be over by a long shot." Michael Grade, chief executive of Channel 4, believed that the New Century bid might well raise doubts about the viability of the rival business plans: "If there is one thing that Rupert Murdoch can do, it is add up. I suspect that the BSkyB bid is about the right price."
Mr Grade last week warned of the "enormous and damaging" consequences of Mr Murdoch gaining a stake in British terrestrial television and urged Parliament to act. He added yesterday: "The Government will be very relieved thay they have avoided a major political row."
However, MPs from all parties expressed their dissatisfaction and dismay with the bidding process. Robert Maclennan, the Liberal Democrat National Heritage spokesman, said: "It looks like a lottery. It's a totally unsatisfactory way to decide which consortium is the best equipped to provide a proper service to the viewer." Graham Allen, shadow Minister for the Media, described the process as "flawed" and "arbritary", which had failed to put viewers' interests first.
The ITC will undertake a six-week period of public consultation before it announces the licence award by the end of November. The new service, which must begin transmission by 1 January 1997, will reach 70 per cent of the population.
A key issue in each of the bids is the provision for retuning VCRs, which will be affected by interference from Channel 5. Estimates for how much this will cost vary - Channel 5 Broadcasting, headed by Pearson and MAI, has set aside £60m, Virgin £100m and New Century £120m.
The last time the licence was advertised in 1992, the only bidder, Channel 5 Holdings, was rejected on the basis of its business plan. City analysts said CanWest could struggle to meet the financial obligations of its £36.3m bid. One said that to break even by the end of the licence period the channel would have to take an "ambitious" 5.5 per cent slice of terrestrial advertising revenue, a figure that would have to rise to 7.7 per cent by 2005.
The bidders, page 4
HOW THEY BID
1 UK TV Developments Ltd £36m
2 Virgin TV Ltd £22m
2 Channel 5 Broadcasting Ltd £22m
4 New Century TV Ltd £2mReuse content