Pay TV phase three document - Stakeholders - Ofcom

Pay TV phase three document – non-confidential version
� DTT (digital terrestrial television): which we believe is likely to provide the main
potential for entry in the near term.
� Cable: which currently offers no potential for entry, since Virgin Media already
markets Core Premium channels, and the platform is currently closed to other
retailers. The key pricing issue in relation to cable is not market entry, but the
level of the ongoing incentive to market Core Premium channels at the existing
rate-card price (see paragraph 6.125 in section 6).
� IPTV (TV over broadband): we believe that this could become an important
distribution technology in the medium to long term. However, for this technology
to become an effective alternative to the existing technologies above, its cost
base would need to reduce. There are two possible ways that this could happen.
Firstly, the cost of fixed network conveyance could fall. There has been a general
trend of falling network conveyance costs however increased demand for
capacity and a greater use of Ethernet is acting to accelerate this trend.
Secondly, the network architecture could evolve to make more efficient use of the
available capacity, for instance, by deploying content caches deeper in the
network. Whilst it is clear that developments are making TV over broadband a
more attractive proposition we do not at this time believe that it is appropriate to
use current network conveyance costs as a proxy for the distribution costs of an
efficient IPTV network.
9.133 In the first instance, we have derived retail-minus wholesale prices on the basis of
the satellite transponder costs that Sky incurs. Taking account of these DSat costs
enables us to derive wholesale prices for an entrant who is as efficient as Sky in
terms of transmission costs.
9.134 In addition to considering wholesale prices for a retailer using DSat transmission, we
have also derived retail-minus wholesale prices for a retailer using a DTT platform,
recognising that the costs of DTT transmission are higher than those associated with
DSat.
9.135 In section 7 we set out the adverse effects on consumers resulting from Sky’s
approach to wholesale supply of Core Premium channels. Our preferred remedy is
that these channels should be made available on a suitable wholesale basis to
competing retailers. Our assessment is that competitors are particularly likely to
adopt DTT as a distribution technology in the short to medium term 542 and therefore it
is necessary for us to consider what wholesale prices would enable a DTT-based
retailer to operate a viable business. We therefore propose to base our retail-minus
prices on an efficient entrant using DTT transmission. We have used recent
observations of market rates for DTT capacity, and have assumed that the efficient
entrant bears the costs of transmitting premium channels, but shares the costs with
other retailers through the use of simulcrypt 543 arrangements on DTT, given that DTT
transmission capacity is relatively scarce.
542 Sky’s application to launch Picnic – a pay TV service on DTT – is relevant in this context.
543 Simulcrypt enables the same channel to be broadcast with more than one conditional access
system, which would allow different set-top boxes (with different conditional access systems) to
receive the channel without having to use more than one videostream.
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