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Independent radio analyst Grant Goddard told the committee that revenue from commercial radio peaked in 2000 and the number of listening hours peaked in 2001.

Goddard said the current annual rate of change in radio listening is -2.3% and this is a problem for the industry because "there is a direct relationship between the amount of listening and the revenue [a station] can make".

Jon Myers, former chief executive of GMG Radio and author of a report on local radio, said: "The commercial radio industry is in crisis. Of the radio stations under 700,000 [TSA], 70% to 80% of them are unprofitable or making less than £100,000."

William Rogers, chief executive of UKRD and TLRC, agreed saying "a lot of the industry is in crisis" but noted that many of his stations are profitable and the problems are "solvable with the right regulatory environment".

DAB launched in the UK in 1999 and currently accounts for 13% of all digital listening. Goddard said the radio industry expected the consumer to gravitate to DAB automatically and made a "fundamental commercial error".

He said there was no marketing campaign to support DAB and throughout the early years the industry wanted to "believe [DAB uptake] was just around the corner and they just had to hang on and wait".

Goddard added: "There is no commercial model for DAB - increasingly the stations are government funded or funded by users or have such a narrow audience that they manage to fund [themselves] in different way to the normal commercial model."

The current plans are for all major stations to migrate to DAB two years after 50% of all radio listening is on a digital platform. FM will not be "switched off" but will be used by local and community radio stations.

UTV owns national AM station TalkSport alongside 13 local stations and left the trade body RadioCentre in opposition to its digital policy and the dominance of Global Radio.

Scott Taunton, managing director of UTV Radio GB, warned that current plans will create a "two tier" system as many UTV stations will not migrate to DAB. Taunton said: "A single tier for all commercial radio would resolve the bulk of my concerns."

However, Myers supports the Government's Digital Economy Bill. Myers said it would be a "disaster not to continue with the digital plans".

Myers said: "The Digital Economy Bill is an enabling Bill which allows government or regulator to make a decision and that decision will be consumer-led."

It emerged this week that Digital Radio UK, the body charged with preparing the UK for a digital radio future, was considering offering consumers a discount on digital radios when they trade in an analogue radio.

A Digital Radio UK spokesperson said: "One of the ideas under review is a scheme whereby consumers will receive a discount on a new digital set in exchange for their analogue set, with the analogue sets going to a good cause. No decisions have yet been made."