TelstraClear is nearing the "pain point" in its partnership with Sky TV, CEO Allan Freeth says.

LASTEST: Watchdog to investigate Sky TV contracts

Speaking to NBR after his address to the TelCon 12 conference in Auckland today, Dr Freeth said around 45,000 TelstraClear customers used his company’s T-Box set-top boxes to receive TV via cable.

T-Box content is provided by Sky TV under a wholesale deal.

“The contract prevents us charging for content not sourced through Sky TV,” Dr Freeth told NBR.

The contract, and its exclusivity clause, suited the cable TV world of the 1990s, the TelstraClear boss said, but not today.

"Boy, has the world moved on."

To standout in a world of uniform service via the UFB (Ultrafast Broadband fibre roll out) ISPs would have to distinguish themselves with services such as on-demand content.

TelstraClear was assessing whether it was worth cutting direct deals with movie studios and TV content aggregators.

Sky TV boss John Fellet was right to say any partner had the commercial option to seek content elsewhere, Dr Freeth acknowleged.

Commercially, it would be a very expensive option. In the short term, there was the certainty of losing its existing T-Box customers under a penalty clause.

But Dr Freeth said his company had taken tough decisions before.

He pointed out that when its wholesale agreement with Telecom hit the rocks (over access to XT), it took its mobile business to Vodafone – a move that cost millions at the time, but which has paid off in the long term.

TelstraClear was reaching a similar “pain point” with Sky TV, Dr Freeth said, where it could be commerically viable, long term, to talk away.

However, he also stressed their good working relationship, and said one option was to negotiate a more flexible contract.

The pair’s content contract is due to be renewed – or not – next year.

Dr Freeth said he respected Sky TV, and there was open discussion.

Nevertheless, the interests of the two companies had diverged.

TelstraClear wants Sky TV to make the contract more flexible, but Dr Freeth said he understood the pay TV provider had shareholders to answer to.

Does TelstraClear want government regulation?

“The government just has to make the right sort of noises and rumbles for us to gain traction in our negotiations with Sky or other parties.” 

However, ICT Minister Amy Adams and Broadcasting Minister Craig Foss have told NBR, and other media, that no regulation is needed at this point.

Today, Ms Adams reiterated that stance to the TelCon 12 audience.

Dr Freeth was not impressed.

“The only place convergence hasn’t occurred is in the minds of politicians and bureaucrats,” he told NBR.

“It’s happening in households legally or illegally today. Ministers and their advisers don’t have mechanism for such environment.”

Some were using illegal services, while others were tapping the likes of iTunes US to buy TV shows or movies over the internet.

The TelstraClear boss did not necessarily advocate regulation. Nevertheless, he thought more was inevitable.

“The prediction I’m making this morning – which is probably totally wrong – is that in three to five years we’ll have another [government] intervention to make fibre compulsory, as with the NBN in Australia.

“If there’s no nudge then people won’t switch.”

The TelstraClear boss also made a second prediction: that within two years, a Sky TV content partner – be it his company or another – would break with the TV providerand cut its own content deals.

An intriguing factor is that TVNZ boss Rick Ellis recently departed to join Telstra, where he now heads a division that includes the company's ISP, Big Pond, its equivalent service to T-Box, and its Foxtel partnership.

TelstraClear is a fully-owned subsidiary of the deep-pockets Telstra.

Life could get interesting.

The head of another big ISP – who did not want to be identified – said his company was seriously assessing whether to introduce a geo-block beating service.

That would allow its customers to access the likes of Hulu and iTunes US, which unlike iTunes NZ and QuickFlix, offer a good spread of recent movies and current TV show for on-demand viewing.