UK regulator Ofcom has ruled that Sky is no longer obliged to offer its all-important Sky Sports 1 and Sky Sports 2 channels on a regulated wholesale basis.
Ofcom says: “The ‘wholesale must-offer’ regulation was introduced in 2010 to promote choice and innovation for consumers through greater competition in pay TV. Last year, Ofcom began a review to determine whether regulation remained appropriate. Since 2010, consumers have been able to choose from a wider range of services, enabling them to watch sports through a range of pay TV broadcasters and devices. Following consultation and evidence from stakeholders, Ofcom has found that Sky is now supplying sports widely on commercial terms outside of the regulation.”
Equity analysts at Exane/BNP-Paribas, in a note to clients on November 19, say the decision is a “marginal positive” for Sky, and a negative for BT. “BT do not currently wholesale BT Sport to Sky or TalkTalk (only to VMED), as historically we believe they and Sky have failed to reach agreement over the relative wholesale value of BT Sport. This is important because BT have been able to offer SS1&2 and BT Sport to customers in a single package, which Sky have not been able to do. Sky TV customers have either needed to pay BT directly (around GBP10 a month) for BT Sport or move to BT broadband to get the channels for free. BT’s investment in Sport has helped them stem the loss of customers to Sky Broadband/Telephony (pre BT’s investment in Sport Sky TV customers with BT broadband/telephony have long been seen as “easy-pickings” for Sky to sell triple play bundles to).”
The bank’s report suggests that a probable outcome is that Sky and BT will now come to the negotiating table and agree to supply each other’s channels. “At the end of the day it is each content owners interest to leverage the fixed cost investment as fully as possible – the question for BT and Sky to consider now is whether the competitive advantage of having their content excluded from their rivals network. This move potentially strengthens Virgin Media’s hand – they would be the only operator selling both BT Sport and Sky Sports. At the same time they are also expanding their network by 4m homes (~15% of the UK) – as the only alternative broadband network in the UK, BT have an incentive to keep customers on their own network, on either a retail or wholesale basis – and Sky are their biggest wholesale customer,” says the bank.
A Sky spokesperson said: “We are pleased that Ofcom has decided to remove the WMO condition. As the evidence demonstrates, we are, and have always been, more than happy to make our channels available on other platforms.”
In a Statement, BT said it was “very disappointed” that Ofcom has proposed the removal of the wholesale must offer obligation on Sky to provide wholesale access Sky Sports 1 and 2 on regulated terms.
“We will consider our legal options in the light of this decision and, in the meantime, continue to offer our customers access to Sky Sports 1 and 2,” it confirmed.
“Ofcom has said it is important for Pay TV retailers to have access to key Sky content to be able to compete effectively in this market, and that they want consumers to have access to these channels. We therefore expect Sky to behave appropriately so that we can continue to offer our customers access.
“Ofcom have also said they will monitor the situation closely and step in if necessary, which is something we welcome.
“We still believe that effective remedies are essential to address the failure of competition in the Pay TV market, in which Sky has had around 75% share of retail subscription revenues for more than 10 years.”
Tom Mockridge, CEO of Virgin Media, said: “We note Ofcom’s decision on wholesaling sports channels. The crucial issue for consumers is the need for urgent reform to the way the Premier League sells live TV rights. Every day that passes without reform is a day where fans and are getting a raw deal- denied live games on TV and paying higher prices.”