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Pay-TV Smackdown: BSkyB Quarrel Laid Bare In Inquiry Documents

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In the red corner – BT, (NYSE: BT) Setanta, Top Up TV and Virgin Media (NSDQ: VMED) team up to complain about BSkyB (NYSE: BSY) in a 59-page joint submission to Ofcom’s review of the UK pay-TV market. In the blue corner – reigning champion Sky submits a counter-argument protesting its competitors are big and ugly enough to compete. The submissions were made privately in July and November to the inquiry Ofcom launched back in March following initial grumblings about Sky’s dominance. But they were made public yesterday and, each posted here, reveal the arm wrestling going on as upstart cable and broadband TV players look for a route in to a market dominated by the satellite operator…

Highlights…

Vertical integration: The group of four complains Sky’s ownership of its own channels, carriage of third-party channels and control of the distribution platform gives it unfair advantages, claiming it holds 80 percent of pay-TV sports, 100 percent of premium movie rights and 86 percent of subscribers to premium sports and movies. But BSkyB reckons they are “completely divorced from the reality” that it faces considerable competition from free-to-air broadcasting. Then again, that’s not what this consultation’s remit covers.

Online: The group said Sky had an unfair ability to bid for sports TV rights because it already held rights to the majority of fixtures. It said this had “spillover negative effects” on the broadband market.

Virgin/Sky: On the spat which left Virgin Media without Sky’s channels including Sky One, the group said: “By wholesaling its premium channels to Virgin Media at uneconomic rates, Sky effectively forces Virgin Media to follow the pricing model of Sky and deprives Virgin Media the flexibility necessary to innovate in the pricing of its retail packages.”

Fact-checking: Sky called in to question an LECG economic study BT, Setanta, Top Up TV and Virgin used to show consumers could be negatively affected by Sky’s dominance, producing a CRA study that undermines the former’s research and trashing their claims Sky operates a “vicious circle” as “fundamentally flawed”. Allegations of anti-competitiveness are “at best, mischaracterisations and, at worst highly misleading”, Sky said.

Competition?: Deflating the group’s claims of anti-competitiveness, Sky noted “almost daily statements by (Virgin Media) about its competitive advantages”, including: “20Mbs broadband, 50Mbs broadband and 100Mbs broadband, which only cable can do, will become more important every day.”