Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
however identified a competition concern that Sky has an incentive not to supply
potential new entrants. The consumer harm we have identified which flows from that
will exist irrespective of whether Sky continues to supply on cable. In these
circumstances there is a risk that the test for a refusal to supply under CA98 might
not be met, but that there would still exist a competition concern leading to consumer
harm which it is appropriate to address through the use of Ofcom’s sectoral powers.
8.20 Even if it were the case that the conditions of a refusal to supply case under CA98
were met, we would face the limitations discussed above that might arise from trying
to bring action against individual instances of a refusal to supply. The competition
concern is Sky’s incentive to restrict supply – i.e. not to reach agreement on the
terms for the wholesale of the Core Premium channels. We recognise however that
there are various genuine and complex issues to resolve in settling the non-price
terms of any wholesale agreement – e.g. on encryption standards. A CA98 case on
refusal to supply which concerned non-price terms is likely to focus on whether Sky
was objectively justified in failing to reach an agreement in respect of that issue. If a
case was brought in relation to a position taken by Sky on a particular issue, in a
particular negotiation, this may not resolve the problem because (a) Sky might shift
the focus of its concerns in that particular negotiation to another non-price term; and
(b) Sky is still under an incentive to delay over the same issue in other, or future,
negotiations with other purchasers.
8.21 Our current view is that it would not be more appropriate to proceed in relation to
some or all of the matters in question under CA98. We welcome comments on that
view. In the following paragraphs of this section we therefore proceed to consider the
principles of a potential wholesale must-offer remedy.
Principles of a wholesale must-offer remedy
8.22 We said in our Second Pay TV Consultation that we could eliminate Sky’s ability to
act on its incentives to restrict distribution of Core Premium channels by requiring it to
provide wholesale access to particular channels on regulated terms. We proposed to
do this using our sectoral competition powers under s316 CA03. We believed that
this would strengthen competition between competition between retailers and
platforms, while maximising choice for consumers.
8.23 Sky argued in response to our proposals that there is no justification for new
regulation. Sky emphasised that Ofcom has a legal obligation to ensure that its
regulation is, among other things, targeted only at cases in which action is needed. It
believed that the proposed regulation fails this test. The requirement that regulation
should be targeted only at cases in which action is necessary means that Ofcom
must establish that its proposals are aimed at remedying significant and persistent
consumer detriment and capable of remedying the identified consumer detriment
cost-effectively.
8.24 Others agreed with the general approach of a wholesale must-offer. For instance, BT
believed that a wholesale must-offer represented the first step towards enabling it to
compete with Sky in the retail market, although it stated that this would not be a
complete solution to all the competition issues it had identified in pay TV. [ � ]
agreed with this position, supporting a wholesale must-offer, but saying that on its
own it would not be an adequate solution. The Four Parties also took this approach,
saying that Ofcom’s proposed remedy would facilitate greater competition in pay TV.
However they also believed that this would only be a partial solution, pointing to what
they felt were problems at all tiers of the value chain – for example, the barriers to
entry upstream.
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