The Government agreed in secret last year to cut MediaWorks local content obligations for Kiwi FM, and it will renew the deal in July.
Kiwi FM yesterday started playing 40 per cent international content after several years of being all New Zealand.
Then-Broadcasting Minister Jonathan Coleman gave approval for MediaWorks to cut local content on Kiwi FM - amending its obligations - in the second quarter of last year but there was no public announcement.
Former MediaWorks boss Jana Rangooni negotiated the reduced local content obligations and it is understood that Communications and IT Minister Steven Joyce was involved in the deal.
The agreement will be renewed in July, said a spokesman for Broadcasting Minister Craig Foss.
A music industry source said MediaWorks' move appears to be a prelude to the Government looking at the future of the non-commercial radio frequencies.
Kiwi FM is broadcasting on non-commercial frequencies and under its agreement with the Government is not allowed to return a profit.
There were concerns that the Government was about to "give away" non-commercial frequencies to MediaWorks and enable them to make a profit from them, said the source who was familiar with the history of Kiwi FM.
A spokeswoman for the Office of the Broadcasting Minister said there was nothing unusual in the Government reducing local content obligations without notifying the public.
Kiwi FM's non-commercial frequencies had been set aside for a national youth radio channel network.
But in 2006, MediaWorks made an arrangement with the Labour Government which allowed Labour to put the youth radio idea on ice.
And now non-commercial frequencies will be used to transmit overseas-sourced pop music as well as local content.
MediaWorks' move to increased overseas content has been given the thumbs up by Universal Music marketing Alastair Cain who hopes that it will provide airplay for alternative music that does not have a home.
A wholly local radio station never made sense, he said.
"We're very enthusiastic. We hope that it will become like Channel Z [a former MediaWorks commercial station that broadcast alternative music]."
Deals involving public assets and tradeoffs in regulatory oversight have become commonplace under this Government.
Warner Bros was given $20 million and industrial law changes to avert threats to move The Hobbit offshore.
Economic Development Minister Steven Joyce is currently negotiating a deal to allow more pokie machines at SkyCity casino in return for building a national conference centre, estimated to cost $350 million.
And in 2009 the Government loaned $44 million to MediaWorks so it could keep its radio frequencies.