By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Regulators approved a radio station's majority takeover by Sebas Bastian's Brickell Management Group (BMG) despite the application being "ineffectual" due to its partners' non-compliance.

The Utilities Regulation and Competition Authority (URCA), in a June 15 letter, described ZSR Sports Radio's 103.5 individual spectrum license (ISL) as being "defective and void" because the station's owners were in breach of the Communications Act.

The licence holders, Olympic medallist Frank Rutherford and the late Phil Smith, had obtained the necessary approvals prior to URCA's creation and the Communications Act's passage into law in 2009.

That Act stipulates that only "legally incorporated entities", meaning companies, can apply for an hold radio broadcast licences. However, Messrs Rutherford and Smith never complied with this requirement, and continued to hold the ZSR licence they obtained in 2007 in their own names.

Despite this failing, and URCA branding Brickell Management Group's (BMG) change of control application "ineffectual" as a result, the regulator's solution was to PERMIT the takeover because this would bring ZSR's licence into compliance with the law.

URCA justified this action on the basis of the Communications Act's section 27 (1) (a), which allows it to "vary any licence granted to a license" to ensure it complies with the law.

However, the licence infraction may provide ammunition to Navette Broadcasting & Entertainment Company, ZSR's operator, which is opposing the deal with BMG's Neman Networks Ltd and threatening to seek a Supreme Court injunction to block it.

Setting out the regulator's decision, Donavon Dorsett, URCA's acting director of electronic communications, wrote: "URCA notes that the issuance of the ISL by URCA for the use of the FM frequency, 103.5, to Frank Rutherford and Philip Smith as private individuals was granted during the transitional period of the Communications Act regulatory regime.

"Section 26 (3) (a) of the Communications Act 2009 requires that persons wishing to apply for an individual licence must 'be legal entities duly incorporated in the Bahamas'. As such, the grant of an individual licence to Messrs Rutherford and Smith not being 'legal entities duly incorporated in the Bahamas' is contrary to the..... Act."

ZSR's spectrum licences were granted by URCA's predecessor, the Public Utilities Commission (PUC), under a regulatory regime that allowed them to be issued to persons approved by the Minister of Tourism under the Broadcasting Act.

Now, with the Communications Act as the governing law, Mr Dorsett wrote: "In the circumstances, URCA considers that the current ISL document is defective and void, as the named licensee is not a legal entity duly incorporated in the Bahamas in accordance with... the Communications Act.

"The application for change in control is therefore ineffectual, as URCA cannot purport to exercise its competition powers under the Communications Act in relation to a licence that is void."

Yet URCA's solution was to allow the BMG transaction to proceed, since this would result in ZSR's licence being held by a company called Paramount Systems, thereby bringing it into compliance with the Communications Act.

"URCA considers that the appropriate regulatory measure to remedy this matter is to accede to the request for an amendment/variation of the existing ISL (and accompanying Class Operating Licence Not Requiring Registration (COLNRR)), and the reissuance of the same to a legal entity duly incorporated in the Bahamas, namely Paramount Systems, which is consistent with the proposed ownership based on the application for change in control," Mr Dorsett wrote.

"This can be most efficiently achieved pursuant to Section 27 (1) (a) of the Communications Act 2009, which provides that URCAS may on its own volition vary any licence granted to a licensee if it is necessary to comply with the laws of the Bahamas.

"The effect of the licence variation is that Paramount Systems will be the licensee of record, and shall have all the rights, privileges and obligations under the said licences with immediate effect from the commencement date of the licences."

Mr Dorsett's letter attached the ISL and COLNRR licences in favour of Paramount Systems. It showed that the latter will be majority 51 per cent owned by Neman Networks, a BMG affiliate, and 49 per cent by Mr Rutherford and the late Mr Smith's widow.

However, Navette Broadcasting and its principals, Cheryl Braynon and Van Ferguson, are opposing the BMG/Neman takeover on the basis that they are the true holders of ZSR 103.5's licence.

This dispute, which may be headed for the courts, was also addressed by URCA and Mr Dorsett in their letter. The regulator noted that while Mr Rutherford was named as the applicant, Mr Ferguson was listed as the contact person and Navette as the applicant's address.

And while the radio station's licences were issued to Messrs Rutherford and Smith, Navette's named appeared on both issuance letters. Mr Dorsett said a September 2, 2009, agreement between Mr Rutherford and Mr Smith's widow, and Navette, provided that the latter would operate ZSR and pay annual licence fees, with Mr Ferguson dealing with URCA.

"URCA is satisfied that at all material times Navette Broadcasting & Entertainment was only intended to act, and did act, on behalf of the licensee, but was not itself a 'licensee' with any rights, privileges or obligations under the licences," Mr Dorsett concluded.

"URCA is further satisfied that, in accordance with the agreement dated September 2, 2009, Navette Broadcasting & Entertainment was intended to, and did function, solely in the capacity of operator of the radio station, ZSR 103.5."

Mr Bastian and BMG's movement into radio broadcasting appears to be a natural extension of their Island Luck TV channel 224, and a bid to exploit the obvious synergies between the two. The company's media interests will now cover both visual and audio channels.