Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
factors constitute entry barriers performs poorly against the definition set out in
the OFT’s CA98 guidelines (the “OFT Market Power Guidelines”) 275 . These state
that “Entry barriers are factors that allow an undertaking profitably to sustain
supra-competitive prices in the long term, without being more efficient than its
potential rivals” (paragraph 5.3). Sky considered that most of the factors that
Ofcom had cited in the Second Pay TV Consultation described ways in which Sky
was more efficient than its rivals. The implication of Sky’s position appears to be
that Ofcom erred in relying on these factors when assessing barriers to entry.
� Third, Sky considered that Ofcom had failed to address adequately its earlier
representations that the observed market outcome, namely Sky continuing to
innovate and invest, does not correspond to a market characterised by persistent
dominance.
� Fourth, in a late submission on 1 June 2009, Sky asserted that our analysis gave
“primacy” to market shares. Sky stated that, in this case, market shares should
be treated with a high degree of scepticism, particularly since the products under
consideration are differentiated. Sky suggested that our analysis had understated
the aggregate competitive constraint exerted by products outside of the relevant
market. In the Second Pay TV Consultation we did assess market shares
including products outside of the relevant market. Sky accepted that testing the
sensitivities of market shares in this way could, in principle, be an “instructive
exercise”. However Sky criticised the way in which Ofcom had carried out this
exercise, particularly our choice of which ‘out of market’ products to include and
which market shares measures to use.
Ofcom’s view on the further representations on the approach to assessing
wholesale market power
5.12 Ofcom has considered carefully Sky’s further representations. Our responses to each
of Sky’s four arguments are summarised below.
5.13 First, in terms of Sky’s arguments about the relevance of dominance as a measure of
market power:
� We agree with Sky that dominance is not a necessary precondition for the
competition concerns that we have identified (see above). Were Sky not
dominant, this would not imply that Ofcom’s competition concerns were
unfounded. Our case for an intervention under s316 is therefore not reliant on a
finding that Sky holds a dominant position as understood in a CA98 case.
� Sky is arguing that the appropriate standard is lower than dominance 276 . As
explained below, we ultimately conclude that Sky is dominant which implies that
Sky would also have a sufficiently high degree of market power were its (lower)
275 Assessment of market power, OFT, December 2004, available at
http://oft.gov.uk/shared_oft/business_leaflets/ca98_guidelines/oft415.pdf
276 Sky stated that, for the types of downstream effects that Ofcom was concerned about in the
Second Pay TV Consultation to arise, “it is likely to be necessary only that [broadcasters] have a
degree of market power associated with the exclusive control of rights to content that is widely valued
by consumers” (section 7, paragraph 11.3).
139