Mathew Horsman on the battle to rule the waves

Discussion of the new Broadcasting Act, scheduled to come into effect this autumn, has so far been largely limited to the television and newspaper sectors. But when the dust settles, the new ownership rules may have a greater effect on commercial radio than on ITV or Fleet Street.

It is a point not lost on Travis Baxter, the head of Luxembourg-based CLT's UK radio empire, which takes in Country, Atlantic 252 and a share in Talk Radio. Looking ahead to what he expects will be a period of considerable consolidation, Baxter is putting the finishing touches on a new structure for CLT UK, which will, for the first time, establish separate operating divisions for national and local radio.

The aim must be to expand further in the UK market, perhaps particularly in local radio. CLT has tended to expand by taking smallish stakes in radio companies, and then standing by to take full control of those investments that work well. Conversely, if it isn't convinced about the long-term value of a radio operation, it is quite prepared to sell. Hence the decision to auction off Country, which has attracted as many as five potential buyers.

CLT, which also has 30 per cent of the new Channel 5 television service, is a long way from the 15 per cent of total radio audience that constitutes the new limit on players in the industry. It is bidding for new licences in London and the East Midlands, and is sizing up a range of other small and medium-sized radio companies.

The new structure at CLT is a small part of what may be a radical realignment of commercial radio. Far more earthshaking will be the strategic decisions taken by the very largest players - including Daily Mail & General Trust and Capital Radio. In the case of DMGT, the first moves have already been made. In a complicated deal two weeks ago, DMGT's associate company, GWR, took control of Classic FM, buying out the Time Warner stake. DMGT's own share in Classic was allowed to dilute. The deal looks to me like early proof that DMGT views GWR as its surrogate in the sector, allowing it to expand beyond its own directly owned shareholdings in commercial radio.

More intriguing still, DMGT may well be weighing up the ultimate takeover: a bid for Capital Radio. Consider how well matched the two companies would be. DMGT publishes the London Evening Standard, the local afternoon newspaper, while Capital has London's leading local radio station. The Broadcasting Act for the first time allows local newspapers to own local radio stations, subject to a public interest test and the general monopoly rules. Media analysts reckon a DMGT-Capital deal could pass.

Other names to watch are EMAP, the media conglomerate which bought Metro Radio, and Scottish Radio, which some believe could form an alliance with Scottish Television in a bid by STV to forge a pan-Scottish media conglomerate. Chrysalis, owner of the Heart stations in London and Birmingham, is also an avid bidder for commercial radio licences.

All this likely activity will focus attention, yet again, on one of the most controversial aspects of UK commercial radio: the dominance of MSM, Capital ad sales house, which has more than 60 per cent of the market. How much bigger will MSM be allowed to get before the regulators step in? Interestingly, the market itself may provide an answer. The consolidation under way could encourage a competitor to MSM, as commercial radio groups get bigger and bigger. GWR, for example, could decide to set up a sales house to sell on behalf of its many stations, particularly now that it has control of Classic FM. DMGT might also be interested - unless, of course, it goes ahead with the purchase of Capital.