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Ofcom UK Allows Sky to Offer Freeview TV and Broadband Bundles

Posted: 31st Mar, 2010 By: MarkJ
sky tvOfcom has today concluded its investigation into the UK pay TV market and made several critical decisions. The changes would allow BSkyB to offer its commercial TV channels to terrestrial Freeview users, alongside a bundle of broadband and phone services, which was last proposed by Sky in 2007 (Picnic). However the Picnic product never made it to market because of a bitter dispute with the regulator (here).

However Ofcom's investigation found that Sky had market power in the wholesale provision of premium channels. This means that it would first have to free up some of its prime TV content before it could offer Picnic. Needless to say that Sky has already launched a legal challenge.

Commenting on Ofcom’s statement, a Sky spokesperson said:

"There should be no doubt that Ofcom’s actions represent an unprecedented and unwarranted intervention. This is a marketplace where customers are well served with high levels of choice and innovation. Consumers will not benefit if regulators blunt incentives to invest and take risks.

After three years of engagement with Ofcom, we now look forward to a judicial process which will apply impartial analysis and clear legal standards."
Following extensive consultation with stakeholders and analysis of the sector Ofcom has made the following decisions:

1.Sky Sports available on all platforms: Sky must offer to supply Sky Sports 1 and 2 to other retailers – for example, cable, terrestrial and IPTV – at a wholesale price set by Ofcom.

2.Sky pay services on terrestrial: Ofcom gives conditional approval to Sky and Arqiva’s request to offer pay TV services on digital terrestrial TV (known as “Picnic”).

3.But dependent on a wholesale deal: Approval of Picnic is subject to Sky implementing a wholesale deal under the supply obligation for Sky Sports 1 and 2. In addition, if Sky decides to offer movie channels on digital terrestrial TV then those channels must also be offered to other digital terrestrial TV operators.

4.Reference on movies: Ofcom is consulting on its proposed decision to make a reference to the Competition Commission asking the Commission to address concerns regarding the sale and distribution of subscription video-on-demand premium movie rights (but which cannot be addressed fully using Ofcom’s powers).

5.Innovation on HD: Sky must offer to wholesale high-definition versions of Sky Sports 1 and 2. HD is a relatively new innovation. To help to promote future innovation Ofcom has not set wholesale prices for the HD channels but requires them to be offered on fair, reasonable and non-discriminatory terms.
Ofcom has set a wholesale price of £10.63 for each of Sky Sports 1 and 2, when sold on a standalone basis, which is 23.4% below the current wholesale price to cable operators. Virgin Media UK will probably be feeling better about the situation this morning, although BT has already said that it is "disappointed" with Ofcom's ruling.

Gavin Patterson, Chief Executive Officer at BT Retail, said:

"Today’s decision from Ofcom is disappointing but a step in the right direction. We will at last be able to sell two premium sports channels. We aim to offer Sky Sports1 and 2 at lower prices than those which have been available. We hope to bring them to the market in time for the new Premiership football season but that will depend on Sky now complying with Ofcom’s decision.

However, Ofcom should have gone much further than it did. They have dropped movie channels, which should have been included. They should have included all Sky Sports channels, not just two. The wholesale price for the two sports channels is higher than the regulator had previously suggested. Pubs and clubs should also have been offered some help as they have no option but to pay sky high prices. Ofcom has not set a regulated price for HD channels.

Sky may appeal against this decision but Ofcom’s remedy should be implemented without delay so that customers can benefit from lower prices."

We suspect that Sky would have difficulty challenging Ofcom’s conclusions before the Competition Appeal Tribunal. Indeed it would be good to see more competition in the market that has made it very difficult for IPTV rivals, such as BT Vision, to compete.

We would like to see sky offering a triple-play bundle of broadband, TV and phone services to consumers who don't/can't have or want a satellite dish on their homes. Unfortunately, due to the legal case, it could be awhile before that actually happens. In the meantime anybody who wants Sky Broadband must first take the Sky satellite based TV service.
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