Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
application of the OFT margin squeeze test, we have incorporated a return on
investment based on our estimate of 10.3% for Sky’s cost of capital.
� Bottom of the range: these prices reflect a competitor which is as efficient as Sky
at equivalent scale, but has higher average costs at lower scale due to the
presence of fixed costs. We have modelled a smaller competitor on the same
cost curve as Sky, but which builds up its subscriber base to reach one million
subscribers after 10 years, using a DTT transmission platform rather than DSat.
Where prices derived according to this approach are below the cost-plus prices
we have taken our cost-plus figures as the bottom of the range for consultation.
9.8 On the basis of the principles highlighted above, we propose that retail-minus prices
should be set to allow a larger competitor (for example, reaching three million
subscribers after 10 years) to compete with Sky’s retail prices, incorporating an
allowance for DTT transmission costs and a reasonable return on investment. This
would suggest prices roughly mid-way through our range for consultation.
9.9 Our calculations have not explicitly taken account of the costs and revenues of
additional services that Sky bundles with its Core Premium pay TV packages. We
recognise a risk that rivals might not be able to replicate Sky’s broader bundles as a
result. To safeguard the effectiveness of the remedy, we propose that wholesale
prices should be subject to a further adjustment in the event that Sky bundles
additional retail products where the incremental price for the additional product is
below its long run incremental cost.
9.10 We also propose to set an incremental wholesale price for HD, to reflect Sky’s own
retail pricing structure. The range on which we are consulting is: £4.00-6.39 per
subscriber per month.
9.11 There are a number of important terms not related to price that we propose to include
in a wholesale must-offer:
Introduction
� We propose that Sky should produce a reference offer which would set out fair,
reasonable and non-discriminatory terms to form the basis of its commercial
arrangements with third party retailers;
� We also propose to require Sky to provide a set of Minimum Security
Requirements that are both platform and CA technology-agnostic, to protect
against content piracy;
� We would expect Sky to issue a set of reasonable “Minimum Qualifying Criteria”
for prospective retailers of its channels.
9.12 In this section we focus on the proposal for a wholesale must-offer remedy to
address the distribution of Sky’s Core Premium channels and thereby ensure fair and
effective competition. Within this option there are a number of forms a wholesale
must-offer could take:
� A must-offer obligation without dictating any price or non-price terms.
� A must-offer obligation including pricing terms.
� A must-offer obligation including some non-price terms.
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