BSky challenges Ofcom’s intervention

MUMBAI: BSkyB is all set to challenge UK media watchdog Ofcom, accusing it of exceeding its legal powers and insisting the former to cut down prices for supplying its premium sports and movie channels to third-party platforms.

In response to the latest Consultation Document in Ofcom’s Pay TV market investigation, BskyB has mentioned that this is an extreme and unprecedented intervention in circumstances in which Ofcom has not found Sky to be in breach of any competition law and has acknowledged that good outcomes are being delivered for consumers.

“Ofcom is seeking to treat Sky’s premium channels as regulated assets in order to pursue a clear agenda -to promote the growth of Pay TV retailers operating on DTT, and to encourage Pay TV retailing on new IPTV platforms. The proposals are in essence a form of industrial policy under which Ofcom wishes to step in and seek to ‘manage’ the market in an effort to promote the growth of particular high-cost technologies that it has chosen to favour,” mentioned a statement prepared by BSkyB.

Additionally, BskyB has accused Ofcom to have failed to think through the consequences of the proposal. While Ofcom acknowledges that its proposals go far beyond what would be required under competition law, it fails to recognise that, in the circumstances of the present case, such a departure from orthodox competition law principles renders its proposed intervention unlawful.

In its submission, BSkyB argues that “Ofcom appears to accept no meaningful constraint at all on the use of its sectoral competition powers.”

Additionally, the model used by Ofcom to calculate financial model of profitability of Sky’s notional premium channels business contains a number of basic but material errors which affect the results substantially. “Once those errors are corrected within Ofcom’s model, the model indicates that, were Sky actually to charge the wholesale prices at the low end of Ofcom’s range, the notional premium wholesale business would expect to lose more than ?700 million over 4 years and would expect to incur an average loss as a percentage of sales of 15%. This is a clear illustration why regulators such as Ofcom should not seek to manage markets,” added the statement.

“Ofcom’s proposals are essentially confiscatory, and suggest that the moment a firm makes a return above its cost of capital, Ofcom will price regulate in order to ensure that its returns fall back into line with those implied by Ofcom’s spreadsheet models of perfect competition. If implemented, Ofcom’s proposals would send an extremely negative message about the UK as a place to invest, and Ofcom as a responsible licensing authority,” concluded the statement.