Sky wins appeal against Ofcom over Sky Sports pricing

Sky has won its appeal against Ofcom’s decision to force the company to slash the amount it charges rivals such as BT and Virgin Media for carrying the main Sky Sports channels. In a summary judgement handed down in London late yesterday (August 8), the Competition Appeal Tribunal (CAT) said that Ofcom’s concerns about the way Sky made its sports channels available on a wholesale basis were “unfounded”.
The tribunal said that the media regulator had misinterpreted some of the evidence in its investigation of the pay-TV market, which resulted in Sky having to cut the price it charged other operators for Sky Sports 1 and 2 by 23% in 2010.

Sky, which has mounted a two-year legal appeal to Ofcom’s ‘Wholesale Must Offer’ pricing model, said that it would consider its response to yesterday’s CAT verdict.
Legal experts have described the ruling as a “crushing blow” for Ofcom, which could trigger a “broadcasting war” between Sky and BT over premium sport coverage.
In the judgment, Justice Barling said: “The tribunal has concluded that Ofcom’s core competition concern is unfounded.
“That concern is based on the finding to which we have referred, namely 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, and that in doing so Sky has been acting on strategic incentives unrelated to normal commercial considerations of revenue/profit maximisation.

“The tribunal is of the view that Ofcom has, to a significant extent, misinterpreted the evidence of these negotiations, which does not support Ofcom’s conclusion. We have found a significant number of Ofcom’s pivotal findings of fact in the statement to be inconsistent with the evidence.”
However, Sky was unable to convince the tribunal that Ofcom had misinterpreted how powerful it was in the pay-TV industry when the regulator ordered the firm to reduce its wholesale prices for the two sports channels.
In a statement, Sky said: “We welcome the CAT’s confirmation that Ofcom’s competition concerns in relation to the wholesale supply of Sky Sports are unfounded and that, contrary to Ofcom’s analysis, the evidence shows that Sky has engaged constructively with other distributors over the supply of its premium channels. This finding supports the argument that Sky has been making consistently over the last five years.
“We also welcome the CAT’s conclusion that the existing commercial terms of supply, particularly in relation to Sky’s wholesale rate card, do not obstruct fair and effective competition in the retailing of Sky Sports across platforms.

At present, Sky has access only to the CAT’s summary of its principal findings and conclusions. Sky will give careful consideration to the full judgment when it is made available.”
Ofcom said that it was “surprised and disappointed” with the decision by the Competition Appeal Tribunal, which it believes is “contrary to the evidence and not in the interests of consumers”.
The regulator hinted that it would now launch a broader investigation into the level of competition in the UK pay-TV industry.
“In a separate investigation, the Competition Commission also very recently concluded that competition in the pay-TV market is not effective,” said the regulator.
“We will therefore immediately consider what further steps we should take to ensure there is effective competition in the pay-TV sector, in line with our duties.”
The ruling potentially means that Sky no longer has to provide Sky Sports 1 and 2 to platforms such as BT Vision and Top Up TV through an Ofcom-regulated price. The satellite broadcaster could also look to recoup its lost revenue from the price cut over the last two years.
Competition lawyer Daniel Geey, of law firm Field Fisher Waterhouse, described the development as a “crushing blow for the regulator after over three years of investigations and consultations into live Premier League matches”.

Virgin Media has built a strong relationship with Sky and has various carriage agreements with its satellite TV rival, but BT could be the biggest loser in the development.
Sky could look to hike up its wholesale prices and make it no longer viable for BT to continue offering Sky Sports 1 and 2 to its customers.
But Geey feels that the telecoms giant has “somewhat safeguarded” its position by recently spending more than £600m to acquire Premier League rights from the 2013/14 season.
BT could therefore still offer Premier League football to its customers without needing a deal with Sky, but this could in turn trigger a “broadcasting war” between the two firms. The firm may also refuse to make its own forthcoming new sports channel available to Sky customers.

“This may start a Premier League broadcasting war, with BT potentially refusing to sell its Premier League channel on the Sky platform. The next step will be for platforms like BT and Top TV to individually negotiate a price with Sky for Sky Sports 1 and 2,” said Geey.
“Sky can, however, refuse to supply if they are unhappy with the offer the platforms propose. Further Ofcom action against Sky cannot be ruled out, however Ofcom would have to go back to the drawing board to come up with reasonable grounds.”