Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
1.55 We have considered and discounted several arguments for extending this obligation
to retailers on Sky’s own platform(s), specifically:
� We do not see evidence for high margins within Sky’s retail business, which
might require an intervention to ensure fair and effective competition.
� We acknowledge that an extension of the remedy would make it easier for
alternative retailers to build up a large subscriber base, possibly increasing their
ability to bid for content rights, and reducing upstream barriers to entry. We do
not however believe this is necessary, since it should be possible to address
Sky’s existing subscribers through other platforms such as those using DTT.
Furthermore, the retail subscriber base is only one of several factors which
influence companies’ ability to bid.
1.56 Should a must-offer apply for the purposes of onward retail to commercial
premises? We propose not to extend the remedy to cover retail to commercial
customers:
� We do not see evidence for restricted distribution of premium content to
commercial premises. Concerns have been put to us about retail pricing, but to
the extent that there are in fact problems with the current level of pricing, these
cannot reasonably be addressed by a wholesale must-offer obligation with prices
set on a retail-minus basis as we propose (see paragraph 1.59 below).
� We acknowledge that an extension of the remedy might make it somewhat easier
for alternative retailers to build up revenues quickly, reducing upstream barriers
to entry by avoiding the time taken to build up a base of commercial subscribers.
We do not however believe the effect is likely to be sufficient for such an
extension of the remedy to be appropriate.
1.57 We therefore propose to take account of concerns relating to the current level of
pricing for commercial premises in our thinking on remedies relating to the way
sports rights are bought and sold (see paragraph 1.77 onwards below).
1.58 Should we set conditions of supply, particularly prices? We believe it to be
necessary for us to determine some of the conditions of supply within the offer, in
particular prices. Not doing so would risk rendering the remedy ineffective for two
reasons:
� The evidence of commercial negotiations to date suggests that a requirement to
agree prices commercially would lead after a protracted period of negotiation to a
stalemate.
� The only prices which other retailers might be able to agree with Sky are likely to
be closely based on the current cable rate-card. However, as we discuss in more
detail below, we do not believe this would allow competitors to Sky to build a
viable business, and it would not therefore address the detriment we have
identified.
1.59 What approach should we take to setting prices? We believe that there are a
number of potential advantages associated with setting prices on a cost-plus basis,
notably:
� It would allow us to set prices in a competitively neutral manner, without for
example having to make any assumptions about the distribution technology used.
11