Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
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� Effects which arise from reducing or eliminating Sky’s wholesale market power at
source.
8.63 As we set out in section 6, the downstream effects of Sky’s market power that we
have identified in relation to residential customers do not apply in the same way to
commercial customers. In particular, while concerns have been put to us regarding
the level of prices for commercial customers, we do not see evidence of restricted
supply, either at the retail level or the wholesale level:
� The main concern that the ALMR and some individual commercial customers
have put to us, in response to our September 2008 consultation, is the level of
retail pricing.
� We do not see the same evidence of restriction of wholesale supply as in the
case of residential subscribers. [ � ].
� The one company that does take a wholesale product – Virgin Media – actually
stopped supplying commercial customers. Beyond that, the one other company
that had direct access to the key FAPL rights – Setanta – elected not to retail to
commercial customers itself, instead selling through Sky. This means that even if
our proposed remedy was extended to retailers to commercial customers, there
is currently no other distribution network than that controlled by Sky.
8.64 With these points in mind, the Four Parties’ suggestion that a wholesale must-offer
obligation could simply be extended to commercial premises, with an expanded retail
margin, does not seem appropriate. We see limited evidence of any restriction of
supply, whilst a wholesale must-offer obligation with prices set on a retail-minus basis
would only address the apparent concerns about high retail prices if we were to
artificially depress the wholesale price. The wholesale price which we determine can
provide for an increased retail margin, if there is a need to compensate for specific
and unavoidable retail costs associated with market entry (see section 9), but it is not
an appropriate mechanism for achieving a specific reduction in retail prices, the
magnitude of which would essentially be arbitrary.
8.65 The Four Parties also made reference to the same ‘ladder’ of investment argument
that we set out above in the context of our discussion of retail on Sky’s own
platform(s) (see paragraph 8.48). They noted that there is a substantial revenue
stream associated with the supply of Sky’s premium channels to commercial
customers, and that without access to this revenue stream other pay TV retailers are
likely to be unable to bid successfully for rights.
8.66 However, the same arguments that we set out in the context of our discussion of
retail on Sky’s own platform(s) also apply here. While we believe there is likely to be
a relationship between subscriber base size and ability to bid for rights, this is only
one factor influencing companies’ ability to bid. It should be possible for alternative
bidders for rights to address commercial customers either by agreeing a wholesale
deal with Sky’s existing retail business, as Setanta has done for its channels, or by
developing their own distribution networks.
8.67 On this basis, we still do not consider it would be appropriate apply a wholesale
must-offer obligation to commercial customers. However, we recognise the strong
views taken by individual commercial customers, and by the ALMR, with regard to
retail pricing to commercial customers, and will continue to keep this under review. In
particular, it might be appropriate to consider a specific remedy in relation to