Competition Tribunal rejects Ofcom rulings in Sky Sports wholesale price battle

Joseph O'Halloran | 09-08-2012

In a huge victory for BSkyB, the UK’s Competition Appeal Tribunalhas overturned a ruling by UK broadcast regulator Ofcom for the pay-TV firm to cut the wholesale prices it charges other operators to show Sky Sports.

Coming only days before the traditional curtain raiser to the English football season, the rights to which are the crown jewels in UK pay-TV, The Tribunal’s ruling concluded that Ofcom’s core competition concern—that Sky has deliberately withheld from other retailers wholesale supply of its premium channels, preferring to be entirely absent from those retailers’ platforms rather than to give them wholesale access—was “unfounded.” Ofcom had also raised concern that in doing so Sky had been acting on strategic incentives unrelated to normal commercial considerations of revenue/profit-maximisation.

Furthermore, in a ringing rebuke to the regulator, The Tribunal, added that Ofcom had, “to a significant extent, misinterpreted the evidence of…negotiations” between parties interested in showing Sky Sports, and that it had “found a significant number of Ofcom’s pivotal findings of fact in the Statement to be inconsistent with the evidence.”

Barling’s panel said that Ofcom had attributed responsibility for the failure to reach agreement largely to Sky’s failure to engage constructively with its counterparties. However, its findings showed that “Sky did, on the whole, engage constructively. On the other hand its counterparties by no means always did so, and in our view regulatory gaming on the part of some of Sky’s counterparties played a much more important role in the commercial negotiations and their progress (or lack of it) than Ofcom has recognised.

”The Tribunal also found no evidence to justify Ofcom’s finding that Sky has an incentive to weaken the business of its sports channels’ wholesale customers in particular Virgin Media who has recently contacted customers taking Sky Sports to inform them of a £3.25 a month price increase during the coming football season. It said; “As for the current terms of supply to Virgin Media, and in particular the level of the rate card prices charged by Sky, in the light of the evidence placed before the Tribunal the price level in question does not obstruct (or contribute to the obstruction of) fair and effective competition in the retail of these channels by Virgin Media. No doubt a lower wholesale price and a higher margin on packages which contain the Sky channels in question would be welcomed by Virgin Media.

"However, the small negative incremental margin which results when one of Virgin Media’s subscribers to a package with only basic pay-TV channels upgrades to one which includes core premium sports channels, is not such as to affect to any significant extent Virgin Media’s incentives to market the latter packages.”