Virgin and BT square up to Sky on prices

Virgin Media and British Telecom have launched a detailed attack on Sky's pricing mechanism for its premium channels such as sport and films, saying that its "near monopoly" of the pay TV market means increased prices for consumers.

Virgin and BT say that if Ofcom applied the new pricing rules, consumers could see prices drop for channels such as Sky Sports 1 by as much as 20 per cent
In a submission to Ofcom the two media and telecommunications companies, along with Top-Up TV, the company which offers Freeview access and tape-free recording, say that the lack of competition in the market is stifling growth and innovation.

Ofcom has launched proposals to control the wholesale pay-TV market, the prices broadcasters pay each other for access to programming, saying that regulated prices would mean greater choice. Sky has rejected the deal, saying that Ofcom's plans are "extreme and unprecedented" and an attack on a functioning market that it says is already delivering for consumers. Ofcom is now consulting and has asked for evidence from the main protagonists.

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ITV's CEO debacle throws up leading questions In the submission, extracts of which have been seen by The Sunday Telegraph, Virgin and BT say that if Ofcom applied the new pricing rules, consumers could see prices drop for channels such as Sky Sports 1 by as much as 20 per cent.

The argument rests on Ofcom's proposals to demand a wholesale "must-offer" price similar to that used in telecommunications. This would mean Sky dropping its prices to other providers.

"The proposed wholesale must-offer remedy would promote the emergence of a more balanced mix of pay TV platforms and retailers which will benefit consumers in terms of choice, price and innovation," the submission says.

"[It] will enable each platform to compete based on its different strengths, and products to be developed which appeal more closely to the preferences of different groups of customers. Those who do not want or cannot have a satellite dish will not need one. Those that do not wish to commit at the outset to a twelve months subscription but are willing to pay for some TV channels will be more readily able to do so."

Ofcom is likely to come to a final decision on price regulation by early in the new year. If it maintains that prices will be regulated, it would be a significant blow to Sky, which is part of News Corporation headed by James Murdoch.

The broadcaster would almost certainly appeal, saying that the business would suffer. Any appeal would have to pass a high hurdle, with Sky having to prove "serious and irreparable harm" to its finances. It has already suggested that Ofcom's proposals could mean a loss for the company of 700m over four years.

Virgin and BT sources argue that with lower wholesale prices, many more companies would be able to enter the market. "It's not about a battle between us and Sky," said one director. "It's about opening up the market, this will actually mean more competition for all of us."

The submission says: "In a more competitive market, it is clear that further innovations would result. One example is the greater availability of HD [high-definition] services on platforms other than satellite and the development of an increased range of on-demand and interactive services by Sky's competiton. For the first time consumers will be able to enjoy genuinely interactive services by being able to participate actively in the TV experience."

Last month Sky revealed that it had already offered to share its channels with other broadcasters at a discount but that the proposals had been rejected by Ofcom. "It is clear that Ofcom's proposed intervention is not about the availability of our channels to other providers. It is about a regulator's attempts to impose price controls on the marketplace."

Virgin and BT have argued that Sky's original discount offer was not sufficient to allow market competition.