Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
� Setanta did not have market power at the wholesale channel level, and was
therefore less likely to be able to exploit any market power by favouring its own
retail business.
� Moreover, Setanta did not retail the same range of additional services as Sky.
This suggested that the additional retail margin Setanta earned by diverting
subscribers to its retail business may be lower than that earned by Sky.
6.50 This expectation was supported by the evidence. Unlike Sky’s channels, Setanta’s
were available very widely. Not only did Setanta itself retail over a number of
platforms (Sky’s DSat platform and Top Up TV’s DTT platform), but it also concluded
a number of wholesale deals, with Virgin, Tiscali, BT Vision and Top Up TV, and did
so within a relatively short period of time. ESPN has announced a similar intention to
make its channel including live FAPL widely available.
6.51 Sky argued that its channels were distributed over several mobile phone networks,
whereas Setanta’s channels were only available over one such network. However, in
our view there is no basis for considering this as evidence that Setanta has tried to
restrict supply of its channels, since we are not aware that Setanta has refused to
make its channels available over any mobile phone network. The limited availability
of Setanta’s channels may simply reflect the fact that linear TV over mobile phones is
currently a small market.
6.52 In summary, Sky has not shown itself willing to negotiate wholesale supply of its
channels to third parties, and the outcome is that it has no such wholesale supply
arrangements in place other than with Virgin Media. In contrast, Setanta has agreed
supply arrangements with third parties relatively quickly. ESPN, the new purchaser of
the FAPL rights previously owned by Setanta, appears to be in a similar position to
Setanta, in that it is not vertically integrated, and has stated a desire to agree
wholesale deals across a range of platforms; although at the time of writing only a
deal with Sky has been announced.
6.53 Sky argued that it was not in a position to offer its premium channels to any DTT
retailer because of the practical considerations described in paragraphs 6.74 to 6.81
below, and that this invalidated any inferences being drawn from comparison with
Setanta. However, as we shall discuss, we do not accept the arguments Sky put
forward as to why it could not supply to any DTT retailers.
Sky’s incentives to supply third parties, and reasons for non-supply
6.54 We have considered the following possible reasons for the lack of wholesale supply
of Core Premium channels to providers other than cable:
� That Sky did not have a commercial incentive to supply its channels on other
platforms.
� That Sky was acting out of a strategic incentive to withhold supply.
� That retailers on other platforms were less efficient than Sky.
� That the other parties to negotiations were engaged in regulatory gaming.
� That practical considerations prevented Sky from wholesaling to other providers.
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