Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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involved do not derive from a position of dominance. We consider in this document
whether the extent of Sky’s market power is such that it has the ability to act in a
manner which is not consistent with fair and effective competition.
5.7 The competition concerns we identify in section 6 relate to the unavailability of Sky’s
channels to third parties at an appropriate wholesale price (either because Sky does
not supply those channels or because we consider that the wholesale price is unduly
high) and to the high retail prices charged by Sky (which can be seen as a reflection
of the unduly high wholesale prices Sky ‘charges’ its own retail arm). In order for Sky
to have the ability to act in a manner which is not consistent with fair and effective
competition we consider that we would have to find that Sky had market power in the
wholesale markets for supply of Core Premium Sports channels and Core Premium
Movie channels.
5.8 In this section we take a cautious approach to assessing the extent of Sky’s market
power. We analyse the extent of market power by reference to the dominance
standard that applies under the CA98 Chapter II prohibition. If Sky meets that
threshold it will have a degree of market power providing it with the ability to act in a
manner which is not consistent with fair and effective competition. We reach the view
in this section that Sky does in fact meet that threshold.
5.9 We note however that our case is not dependent on demonstrating that the
dominance threshold has been reached, and that the concerns we identify in section
6 may continue to exist in a situation where Sky does not have dominance. We also
note that Sky appears to agree with this position, since it argues that dominance is
not a necessary precondition for the competition concerns we have identified.
5.10 As in the Second Pay TV Consultation, we make our assessment by reference to
both existing circumstances and likely future outcomes. We thus consider market
power by looking at whether any firm is currently dominant in the relevant markets
and whether any firm is likely to be dominant in the relevant markets for the next
three to four years.
Overview of the further representations received on the approach to assessing
wholesale market power
5.11 In its response to the Second Pay TV Consultation, Sky criticised Ofcom’s analysis of
market power at the wholesale level. According to Sky the more significant flaws in
Ofcom’s analysis were as follows:
� First, Sky considered that Ofcom’s analysis was carried out as though Ofcom
was engaged in an application of Chapter II of the CA98. However, in Sky’s view,
dominance is unlikely to be a necessary condition for the types of issues that
were identified as a concern 274 .
� Second, Sky considered that Ofcom’s approach to assessing entry barriers was
mechanistic and likely to be erroneous. Sky stated that Ofcom’s concept of which
274 In paragraph 3.13 of section 3 of its response to the Second Pay TV Consultation Sky comments
that Ofcom should not be able to intervene to force supply of channels under s316 unless it meets the
equivalent test for doing so under CA98, which requires a prior finding of dominance. Sky therefore
appears to be arguing that competition concerns could exist without a finding of dominance but at the
same time that Ofcom’s powers under s316 should not be interpreted as being capable of addressing
such concerns.