ITV’s licence fees could be cut by more than 40% under proposals to be published this week by Ofcom, the media regulator.

Ofcom — headed by former NTL chief executive Stephen Carter — will set out how it intends to value the licences over the next decade. Earlier this year the regulator rejigged the licensing timetable so ITV can rebid for all 16 regional franchises from December 31.

ITV executives indicated last week that they would take the opportunity offered by Ofcom, and hope to have the financial terms for all the franchises renegotiated by June next year.

ITV pays about £200m a year to the government in licence fees, and estimates that it contributes another £250m in kind through the public-service broadcasting quotas included in the franchise terms. As well as regional and national news programmes, ITV is required to screen a minimum number of hours of children’s, current affairs and religious programmes, and must foster independent television production companies.

Analysts and industry executives believe the level of fees will fall sharply as a result of the negotiations.

The licences are for analogue television broadcasts, and the number of analogue viewers in Britain is falling sharply as people switch to digital sets. Ministers want to turn off the analogue signal altogether by 2010.

ITV currently pays a flat cash fee each year, and a variable fee depending on its “qualifying revenue”. With ITV’s revenue for analogue falling as viewer numbers drop, a fall in licence payments is inevitable, according to analysts.

Julien Roch, media analyst at Merrill Lynch, said: “The market expects the licence fees to fall by around 40%, but I think the reduction could be even greater.”

The renegotiation could give ITV — which was created from the merger earlier this year of commercial television rivals Granada and Carlton — a welcome boost to profits. The City expects pre-tax profits for the year ending this December of about £261m, jumping to £410m in 2005 and £447m in 2006.

Savings resulting from the merger will account for much of the increased profitability, but professional investors are also expecting lower licence-fee payments.

This week’s announcement is likely to kick-start a wider debate about the future of public-service broadcasting and the timing of the switch-off of the analogue signal.

Earlier this year Ofcom began a review of public-service requirements, and it expects to publish its conclusions in the autumn.

An Ofcom spokesman said: “We are trying to take a holistic view of all three issues — renegotiation of licences, the public-service review and the digital switchover.”

A reduction in the fees paid for the analogue licences may eventually be balanced by additional taxes on digital broadcasts.

Industry experts have speculated that it will take the form of a “spectrum tax” — although such a plan would have to take account of individual broadcasters’ levels of earnings.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts