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BSkyB deals Ofcom a blow in battle over telly sports prices

Wins right to appeal against meddling of its crown jewels

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BSkyB has won a major victory in a five-year battle with the UK competition authorities over its crown jewels: its pay TV sports channels.

Both Ofcom and the Competition Commission had decided that the pay TV market was not serving consumers, ordering Sky to wholesale its premium sports channels to arch rivals Virgin Media and BT, and giving Ofcom the power to set the wholesale price. Sky appealed a 2010 Ofcom pricing decision. But the Competition Appeal Tribunal ripped up those prices, reserving harsh words for Ofcom's reasoning.

The 2010 appeal rapidly turned into a gigantic legal clusterfuck, with Sky questioning Ofcom's authority, and rivals returning fire at Sky. Hearings ran for two months last year and evidence ran to 35,000 pages.

Ofcom had claimed that Sky wasn't a constructive market participant in order to protect its own retail satellite business, at the expense of revenues from the platform. It didn't offer rivals HD or IPTV versions of its sports broadcasts either. Ofcom made the assertion that Sky had been obstructive for "strategic reasons": in other words, Sky had wanted to nobble the market.

This was comprehensively thrown out by the tribunal, after an exhaustive process of evidence gathering and hearings. Sky was not obstructive, it concluded, and the broadcaster withheld its material for practical commercial considerations.

"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," concluded the tribunal.

"Sky did, on the whole, engage constructively," the ruling adds. "Sky has no theological objection to wholesale supply of its premium channels, and is, in principle, willing to do so where self-retail is not open to it."

A commercial decision requires two to tango, and the tribunal points out that Sky's rivals, who wanted the sports, broke off negotiations in the knowledge they could appeal to a sympathetic regulator. This is called "regulatory gaming".

So what happens next?

What Sky has won is the right to appeal Ofcom's 2010 pricing order. Sky sought to establish that Ofcom didn't have the authority to meddle with retail pricing, and that it shouldn't duplicate the work of the Competition Commission - both these claims were rejected by the tribunal.

Existing commercial contracts will not be overturned. Money has been paid into an escrow account since 2010 in any case. As for current pricing, the tribunal concluded that price wasn't a factor in the adoption of Sky on Virgin Media's cable platform. Ofcom had wanted to reopen the hearing and delay judgment, but the tribunal rejected the request.

A full judgment will follow, and Virgin and BT have reserved their right to appeal.

Ofcom said it was “very surprised and disappointed” with the decision, and adding a reminder of its duty to protect consumers. Aka, intervene in the market. ®

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