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Ofcom's tussle with BSkyB leaves it in a terrible position
Steve Hewlett Guardian. Monday 13 August 2012
DATELINE: 13/8/12
Ofcom's chief executive, Ed Richards, has not had an especially good couple of months. First he failed to get the BBC director general job he'd somewhat controversially applied for. Then last week the most significant, time-consuming and important project of his entire tenure in charge of Ofcom – the pay-TV review – came spectacularly off the rails.
To cut a long story short, it started back in 2007 as an investigation following complaints from BT, Virgin Media and Top Up TV that BSkyB was in effect preventing them from becoming proper competitors in the pay-TV market by denying them access on fair terms to premium sports content. In 2010, Ofcom found for the complainants and against BSkyB and introduced new wholesale must-offer rules, compelling BSkyB to make its premium sports channels available to BT, Virgin and Top Up TV at regulated prices.
BSkyB immediately appealed against the Ofcom findings: first, on the grounds that Ofcom had exceeded its legal powers – an important but essentially technical point; but second, on the far more significant grounds that Ofcom's findings alleging anti-competitive behaviour by BSkyB were just plain wrong and therefore that the remedy – the wholesale must-offer rules – Ofcom had put in place to deal with it should be withdrawn.
Meanwhile, the original complainants appealed on the grounds that the price reductions brought about by Ofcom's intervention were not big enough.
Last week, after 37 days of hearings, 41 witnesses and 35,000 pages of submissions, the competition appeals tribunal (CAT) issued its judgment. On the upside for Ofcom, the CAT ruled that it had been within its rights to conduct an inquiry into BSkyB's dominance of the market in premium sports content.
On the downside – and as downsides go it's hard to imagine a bigger one – the CAT said that Ofcom's entire case against BSkyB was "unfounded". That Ofcom's assertion that BSkyB had not negotiated in good faith with its competitors – and was prepared even to forgo new revenues because of an overarching strategic concern to keep them out of the market altogether if possible – was simply not sustainable.
And it was especially wounding for Ofcom – which sets out its stall as an "evidence-based" regulator – that the CAT added: "The tribunal is of the view that Ofcom has, to a significant extent, misinterpreted the evidence of these negotiations [that is, those between BSkyB on one hand and BT, Virgin and Top Up TV on the other over wholesale access to BSkyB's premium sports channels] which does not support Ofcom's conclusion. We have found a significant number of Ofcom's pivotal findings of fact … to be inconsistent with the evidence." Ouch!
And if that weren't bad enough, on the question of whose fault it was that years of negotiations between BSkyB and the "counterparties" had produced no deals, the CAT said that "regulatory gaming" (that is, seeking to provoke regulatory intervention as a substitute for commercial negotiation) by BT, Virgin and Top Up TV "played a much more important role" than anything BSkyB did. That far from trying not to do deals for "strategic" reasons, as Ofcom said it had, BSkyB did on the whole engage constructively in negotiations – unlike the counterparties. In other words, the clear implication is that Ofcom didn't just "misinterpret" the evidence; if it didn't fit the theory – that BSkyB was in the wrong – the regulator ignored it.
This CAT finding, if it is not itself appealed and overturned – and, despite the strong press statements from Ofcom and BSkyB's rivals, that seems unlikely – really couldn't be worse for the regulator or better for BSkyB. But does it mean that BSkyB doesn't dominate the pay-TV marketplace? No. Nor does it mean that BSkyB's dominant position – notwithstanding that it's been built by a very well-run company at considerable commercial risk – poses no public policy concerns. Earlier this month the Competition Commission, while dismissing movie rights as a key factor, did say that BSkyB's market power meant that competition in the pay TV market was "not effective". The commission went on to say, however, that at this stage it was powerless to do anything about it.
So there you have it. The latest regulatory attempt – there have been many over the last 20 years – to clip BSkyB's wings has failed. And after the pasting the regulator has just been given by the CAT, it's hard to see Ofcom coming back for more anytime soon.
Meanwhile, something very interesting happened during the last bidding round for Premier League football rights. For the first time a serious competitor with a massive chequebook took on BSkyB. It didn't succeed, but BT – one of the core complainants in the ill-fated Ofcom pay-TV review, remember – went into the process to win. So maybe that's a sign of things to come – less complaining and more competing?© 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved.
Last modified: Monday, August 13, 2012
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Previous stories
Ofcom
Iran's Press TV loses UK licence
Campaign Response to Jeremy Hunt's 'Open Letter': June 2011
BSkyB and News Corporation's proposed takeover
Ofcom rejects complaints over Sky News election coverage
Ofcom opens debate on net neutrality
Citizens, Communications and Convergence consultation - Ofcom responds
Sky told to cut wholesale prices
Ofom's Facebook revelations
Digital TV take-up continues to rise.
Sky may have to share TV channels
Half of TV households choosing pay TV services
Ofcom's Public Service Broadcasting Review: Good on the BBC, Bad on ITV
CPBF reponse to the Ofcom Review of Advertising and Teleshopping – Stage Two
Ofcom PSB Review
Citizens, Communications and Convergence
Ofcom on Public Service Broadcasting - Part II
Ethnic minority groups lead the way
CPBF response to Ofcom consultation on TV Ads
Those TV phone-in scandals - Ofcom starts re-regulating!
Future of Radio consultation
Ofcom rejects Dispatches complaints
On the side of the market
Ofcom rules out immediate cash aid to Channel Four
Commodity or public asset?
Channel 4 Funding
Response to Ofcom's Digital Dividend Review
Ofcom consults on Public Service Publisher
Ofcom backs no change on product placement
Business as usual at Ofcom
Where did it all go wrong for ITV?
