Capital Radio and GWR countered a renewed sense of optimism in the radio advertising market yesterday by delivering mixed trading updates.

The two businesses, which said they are due to complete their £711m merger in May, both reported a difficult run-up to Christmas as the commercial radio sector experienced a surprise dip in airtime sales in the final quarter of last year.

Earlier this week Emap and Scottish Radio Holdings said the year had got off to a stronger start but the two largest players in commercial radio failed to match their enthusiasm yesterday.

GWR, owner of Classic FM and 32 local stations, warned of an "inconsistent" market with turnover for this month expected to fall 4%. Capital Radio, owner of 95.8 Capital FM in London and 20 other stations, said January revenues would be flat, though it saw some signs of improvement.

GWR confirmed a poor final quarter of last year, with advertising turnover falling 3%. Revenues from the local stations, traditionally a reliable generator of turnover for the group, fell 3% while national advertising revenues at Classic FM dipped 7%. Both divisions were up against demanding comparative figures for the final quarter of 2003.

Capital Radio said trading in the last quarter of 2004 "reflected challenging market conditions experienced by the radio industry" as revenue fell by 4%.

Howard Bareham, head of radio at media buyer MindShare, said the mixed outlook reflected an uncertain and competitive market: "The overall market is not great. There is a lot of uncertainty, or low visibility, and there is still great competition in the marketplace."

GWR and Capital Radio said their merger would complete subject to shareholder approval. Capital has agreed to sell its Century 106FM station in the east Midlands as part of a regulatory settlement.