Clash of the TV titans - Ofcom launches investigation into pay TV industry

On 20 March 2007, Ofcom, the UK's independent regulator and competition authority for the communications industries, announced its decision to launch an investigation into the pay TV market.

This decision is set against the backdrop of a high-profile dispute between BSkyB and Virgin Media (formerly NTL/Telewest) concerning BSkyB's attempts to raise prices for the supply of its basic TV channel package, which includes Sky One, Sky Travel and Sky Sports News.

The dispute escalated earlier this month, resulting in the withdrawal of these channels from the Virgin cable platform.

Virgin Media is the biggest UK cable TV company with a customer base of approximately 3.3 million customers. BSkyB is the UK's biggest pay TV operator with approximately 8.4 million satellite subscribers and a strong position in the upstream markets for pay TV programming.

The next stage of the battle between these two TV titans is likely to be fought in the competition law arena.

The market investigation

The announcement is in response to a submission from BT, Sentanta, Top UP TV and Virgin Media asking Ofcom to investigate the pay TV industry, which includes cable, digital terrestrial television, satellite and TV over DSL.

Consumer groups including the Ofcom Consumer Panel and the National Consumer Council have also expressed concerns to Ofcom about the loss of BSkyB channels on Virgin Media's pay TV platform.

Ofcom has confirmed that it will obtain information from market participants and assess the pay TV market having regard, in particular, to control over content, ownership of distribution platforms, the retail subscriber base and vertical integration. Ofcom has also stated that it will look at the implications of the possible entry of BSkyB into the digital terrestrial television market as part of its investigation.

If Ofcom finds reasonable grounds to suspect that any feature, or combination of features, of the pay TV market restricts or distorts competition, it may use its powers under the Enterprise Act 2002 to make a market investigation reference to the Competition Commission.

The Competition Commission would then decide whether such anti-competitive features do exist and, if so, what remedial action should be taken. The Competition Commission would have up to two years to investigate and report on the market.

Other regulatory action

Following the breakdown of talks with BSkyB, Virgin Media stated on 5 March 2007 that it would pursue BSkyB for damages in court if they failed to strike a deal within the next 30 days. The cable operator pointed to BSkyB's "systematic abuse of dominance", accusing the company of "consistently [trying] to use their market power to fundamentally change in their favour the dynamics of the pay TV market."

Such accusations indicate that Virgin Media may launch an action against BSkyB on the basis of an Article 82/Chapter II infringement.

Additionally, by way of a separate process, Ofcom is already carrying out an investigation into BSkyB's purchase in 2006 of a 17.9 per cent shareholding in ITV. It was commented in the press at the time that this was part of a blocking strategy by BSkyB, aimed at Virgin, who had (via NTL) expressed an interest in taking over ITV.

The Secretary of State for Trade and Industry asked Ofcom on 25 February 2007 to conduct an initial investigation into whether the acquisition raises "public interest issues" relating to the plurality of media by 27 April 2007. This procedure could itself give rise to a reference to the Competition Commission.

Comment

The BSkyB/Virgin Media battle presents Ofcom with a fresh chance to address some of the regulatory challenges presented by BSkyB's substantial position in the UK pay TV supply chain. Virgin of course, has a track record for taking on incumbents in other sectors though its image as the "maverick" may be wearing thin. The scene is set for an interesting encounter with Ofcom - or possibly the Competition Commission - as arbiter and consumer champion.