The advent of digital radio is shaking up the radio sector

BBC News Online takes a closer look at what is driving consolidation in the sector.

Why do Capital Radio and GWR want to merge?

Big is beautiful in the commercial radio sector, in part because super sized radio groups can use their bigger muscle to push the development of digital radio forward at a higher pace, spurring growth and bringing in more listeners and advertisers.

If the merger was to go ahead, Capital and GWR would immediately reach more than a third of the current radio audience with their 93 digital and 55 local analogue radio stations.

This would be so attractive to advertisers that they might be happy to pay even more than they do now, and the new and larger group should become even more profitable than the two separate companies already are.

A merger would also bring about cost savings, possibly to the tune of �8m according to one estimate, as sales and administrative teams are merged and possibly cut.

Over time, the new group should be able to provide a broader choice of music entertainment. This could come in the form of more niche digital radio stations which are relatively easy to launch given that bandwidth is no longer an issue.

The hope of the commercial sector is that their joint share of the market would grow while that held by the BBC would shrink.

Will Capital Radio and GWR be allowed to merge?

Had this been last year, the merger would have been brought to an abrupt halt, but the law governing media ownership changed earlier this year, making such deals possible.

The introduction of the Communications Act removed limits on the number of radio licenses any single company could hold.

Nevertheless, a deal of this magnitude will obviously attract scrutiny, so before the deal can be completed it will need to be approved by industry regulators.

The Competition Commission, the Office of Fair Trading, Ofcom and conceivably even the Department of Trade and Industry will want to have their say.

It is unlikely that they will accept the proposed merger without forcing Capital and GWR to make at least some changes, such as selling a few radio stations.

But analysts say the regulators are unlikely to block the merger since Capital and GWR operate in different parts of the country and a link-up would therefore not create giants that could dominate local or regional advertising markets, except in the East Midlands where they both have stations.

Will other local radio groups follow suit?

Quite possibly.

Major radio groups such as Emap and Chrysalis Group appear keen to grow.

A deal between the two has been hinted at in the past, though competition authorities might object since an outright merger would create a group that would dominate almost half the advertising market both in the north east of England and in London.

A more likely development could include further growth in Scotland for Emap which already owns more than a quarter of Scottish Radio Holdings.

If this happened, there would be just two leading radio groups in the UK - that is Capital/GWR and Emap/Scottish Radio - controlling more than two thirds of the advertising market in the UK.

Under this scenario, Chrysalis would be left out in the cold, so it would be safe to expect this company to act.

What are the available options for national radio groups?

There are not that many of them but the commercial radio stations Virgin and Talksport could well be snapped up by even larger broadcasting groups that currently focus mainly on TV. For example, ITV might want to buy Virgin Radio.

Such developments were made possible by the relaxation of cross-media ownership rules. Some sort of deal between Talksport and the almost equally sports-mad BSkyB could be one possibility, not least since the media mogul Rupert Murdoch's News Corp holds stakes in both operations.

Will non-British radio groups get in on the act?

Until recently, companies from outside the European Union were prevented from buying British broadcasters, but that ban was recently lifted.

There is plenty of talk that the leading US radio operator Clear Channel will snap up a British radio group, though probably not just yet given that the latest feeding frenzy has forced up prices and made any possible acquisition look relatively expensive.

But in the long run, even a combined Capital/GWR entity would not be safe.

Clear Channel is a mighty operator with deep pockets that could easily find the cash to buy even the biggest British radio operator outright.