Ofcom has rejected two Format change requests from Town and Country Broadcasting.
The broadcaster was refused permission to base Bay Radio and Bridge FM anywhere within Ofcom's South Wales approved area.
Both services are currently co-located within the West Wales approved area, at Neath, but Town and County wanted the flexibility to base the stations elsewhere.
The request went to consultation, of which there was just one positive response.
Ofcom says the size of the station and lack of evidence to suggest that that the two stations would not, in the long-term, be financially viable without the co-location request being approved, was the reason for not approving the request.
Bay Radio has a Measured Coverage Area population of 314,466 adults.
Martin Mumford, Managing Director of Town and Country Broadcasting told RadioToday.co.uk: "We note the RLC's comments about this proposal and will consider our options in light of the regulations and our various lease commitments."
Explaining their result, the regulator said: "The committee also felt that there was a potential lack of cultural affinity between the areas. It was of the view that Cardiff (in the South Wales approved area) and Swansea (in the West Wales approved area) can be seen as competing, rather than complementary, cities. Both are large regional centres in their own right (for example, much of West Wales looks to Swansea as its regional centre), and there are fierce sporting rivalries between the two cities."