The BBC’s launch of its Radio 1 Dance music stream featured alleged failings by Ofcom that could have “wide implications” for the radio and TV regulatory landscape, the High Court has been told.

Radiocentre Ltd, the industry body for commercial radio, is bringing a challenge against the regulator over its approval of the online-only stream without requiring the BBC to carry out a “public interest test” (PIT).

The regulator’s stance would allegedly allow the BBC, an interested party in the case, to launch new services without a mandatory PIT requirement if these were not broadcast via terrestrial radio or television, lawyers for Radiocentre told the court as part of a two-day hearing in London that began on Tuesday.

Commercial radio operators also claim Ofcom took a “fundamentally flawed” approach to the potential competitive impact to their sector and failed to ensure they were properly consulted.

According to Ofcom, which opposes the claim, the BBC must conduct a PIT whenever it proposes making a “material change” to the “UK Public Services” (UKPS).

Both regulator and broadcaster agree that launching Radio 1 Dance (R1D) in October 2020, available through the BBC Sounds platform, was not such a change nor a new UKPS as it falls within the existing “BBC Online” umbrella.

Timothy Otty KC, for Radiocentre, said its case centred on whether Ofcom had acted “irrationally” by concluding R1D was not a new UKPS because it was not broadcast on “digital audio broadcasting” (DAB) over conventional radio channels.

“This question has wide implications for the regulatory landscape,” he said, adding that Ofcom and the BBC’s position created a “regulatory lacuna”.

“It would… be open to the BBC to introduce any number of new radio services and television services designed, marketed and operated in identical manner to existing radio stations and television channels, provided only that those services were not broadcast, in the case of radio, on DAB or other terrestrial radio or, in the case of television, on DTT (Digital Terrestrial Television),” Mr Otty said.

He said that under the BBC and Ofcom’s approach the “only regulatory safeguard” would be Ofcom’s ability to decide a service might adversely affect competition.

“But that analysis and determination might come far too late, after launch of the relevant services, and after material damage had been done to the commercial sector,” Mr Otty added.

Mr Otty said R1D, which has a 24-hour, seven-days-a-week schedule, had features of a “new radio service”, appearing on the dial of the BBC Sounds app “indistinguishably” from other radio stations, and challenged the claim it featured no exclusive content.

“The BBC did create new content for R1D, or at least “with (R1D) in mind” such that it could not accurately be said that R1D was merely curating existing content or content that would have been commissioned in any event,” he said.

Mr Otty said the intention was to make R1D a “first of its kind” spin-off, “feel like” a radio station and it was identifiable to consumers as one.

He said Ofcom “erred” in concluding the stream’s market impact was “likely to be small” and claimed commercial operators were only given three to six days’ notice of launch plans before a scheduled public announcement, “leaving no time for their concerns to be taken into account”.

In court on Tuesday, Mr Otty said the BBC “enjoyed a privileged, unique position as a publicly funded organisation with the freedom not to need to make money to survive” and had 50% of radio listenership.

He said Ofcom’s scrutiny of the broadcaster involved preventing it using its competitive advantage to “crowd out” the commercial sector.

Mr Otty said “the heavens are not going to open if this claim succeeds”, arguing it would lead to the BBC carrying out a PIT for R1D.

Tristan Jones, representing the regulator, said in written arguments that R1D featured “no exclusive content”, had a large number of repeats, was not available on traditional radios and had a “very small audience”.

“It is well established that online-only offerings which resemble traditional broadcast radio or television can fall within BBC Online,” he said.

He said Ofcom’s approach meant the BBC launching an online-only stream meant it did not automatically have to conduct a PIT, only if it or Ofcom considered there was a material change to an existing UKPS.

But he added this did not mean the regulator “would simply sit back and do nothing until competitive harm has been done”.

He said Ofcom and the BBC continued to act “sensibly and responsibly”, with the regulator also having the power to conduct a “BBC competition review” (BCR) at any time.

Mr Jones said Ofcom had considered launching a BCR of BBC Sounds, which collated the broadcaster’s radio, music and podcast output from 2018, but concluded it did not have reasonable grounds to believe it was having an adverse impact on competition.

He said Ofcom had correctly understood the facts around R1D’s launch and that it had sufficient information to reach its decision without requiring further consultation with commercial radio.

Monica Carss-Frisk KC, for the BBC, said in written arguments that the Radiocentre case was “ill-founded” and involved a “wholesale attack” on the regulatory framework.

“Ofcom’s decision that the introduction of the R1D online stream to BBC Sounds is not a material change to BBC Online was well within the scope of Ofcom’s regulatory judgment,” she said.

“The introduction of an online stream with no new and exclusive content, and with a level of listenership which is far from threatening to commercial providers, is not a change which may have a significant adverse impact on fair and effective competition,” Ms Carrs-Frisk said.

She said the BBC had informed Ofcom and the industry of its plans for R1D, part of a bid to appeal to “younger and more diverse audiences”, and had “engaged appropriately with stakeholders” despite having “no obligation” to consult with commercial radio.

Ms Carrs-Frisk added the BBC was “always clear” R1D would feature music curated from existing content, archive content, and simulcasts – material simultaneously played elsewhere on the BBC.

The hearing before Mr Justice Julian Knowles is due to conclude on Wednesday, with a ruling expected at a later date.