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Sue Sky

Lawyer's blunt take on Commerce Commission's investigation | Innovative reforms that would boost competition.

Sat, 12 Oct 2013

After 18 months' investigating Sky TV's partnerships with ISPs, and whether its content deals prevent new market entrants, like Quickflix, from gaining a critical mass of content, the Commerce Commission decided to let the broadcaster off with a warning.

In a letter to Sky TV CEO John Fellet, Commerce Commission chairman Mark Berry writes:

Sky TV is a near monopoly in the supply of pay TV in New Zealand, such that any new entry were it to occur would have significant benefits for New Zealand consumers.

The next sentence is redacted (censored from the public version).

The next two points read:

The key commitment provisions alone (or in aggregate) increased barriers to entry to the RSPs [retail internet service providers or ISPs], some of the most likely entrants into the pay TV market and;

There is some evidence that RSPs were deterred by the key commitment from considering entry into the pay TV market provisions and where RSPs attempted to enter (or considered entry) they were prevented from doing so by Sky TV enforcing the key commitment provisions.

Certainly, the boss of one ISP - TelstraClear - earlier told NBR his company's partnership with Sky TV had reached a commercial "pain point" because TelstraClear to source any alternative content for its T-box pay TV service without Sky's permission. 

It doesn't seem like that was legal. Mr Berry writes that:

'Key commitment provisions of Sky's contracts with RSPs are likely to have previously breached section 27 and were at risk of breaching section 36 of the Commerce Act by hindering competition in the market for pay TV in New Zealand"

Sky TV says it lost a lot of money and took risk to build its subscriber base and portfolio of content. More relaxed partner agreement would allow ISPs to "free ride" on its content.

Mr Berry responds:

Sky TV is not seeking to protect its investments, but seeking to preserve its market power by limiting competition from RSPs.

These are heavy allegations. Neverthess, the Commission decided not to take any legal action against Sky TV.

Why? In part, because the Commission found evidence of emerging competition from new technology platforms. Coliseum Sports Media's is cited by Mr Berry as an example. Frustrated users of Coliseum Sports Media's might guffaw at the notion it's a potent competitor to Sky TV (and lawyer and commentator Michael Wigley has even gone so far as to suggest Sky TV could be making a "tall dwarf" play, accidentally-on-purpose losing the bidding war for English soccer rights - minor in the NZ scheme of things - to give the appearance of competition).

Mr Wigley points out another factor. "The Commerce Commission's hands were tied."

The Commerce Act was the wrong tool for the job, he tells NBR ONLINE.

To wit, in his warning letter, Mr Berry notes there is nothing to stop any broadcaster bidding for content rights, but that Sky's large subscriber base gives it an advantage given that some content is expensive. However, the high cost of content in itself is not a matter for sections 27 or 32 of the Commerce Act.

Should have sued
Mr Wigley says he can understand why the regulator chose that course. In an environment of tight resource constraints, legal action against Sky TV would cost millions, and take years. And given the woolliness of Sections 27 and 32 of the Commerce Act, the outcome would be far from certain.

Nevertheless, Mr Wigley says the Commission should have sued over the historic breaches.

"The damage to NZ Inc is just too great to ignore. It needed to make a statement," he says.

"It's a legitimate call because it would send a messages to the wider industry that if do breach the Act then are consequences."

Reform the Commerce Act
Mr Wrigley says it's been obvious for 20 years that the Commerce Act is ineffective for dealing with anti-competitive behaviour, citing the "0867" case against Telecom as an example.

After losing the decade long case, the Commission seemed to throw in the towel on Section 36, abandoning plans to develop guidelines under the Commerce Act to prevent large companies capitalising on market power. Coupled with speech to the Auckland District Law Society in which erstwhile Commission chairwoman Paula Rebstock lamented the multi-year time frames involved in getting a Section 27 or 36 case to trial, it can be taken as a sign the regulator is unlikely to pursue cases under the legislation.

But despite its various critics, there are no plans afoot to reform the Act.

Sector-specific legislation
An alternative is to introduce sector-specific legislation for broadcasting - and at the same time introduce a single regulator for the converging broadcasting and telecommunications industries.

Telecommunications Users Association CEO Paul Brislen is one of many calling for a single regulator.

Mr Wigley says New Zealand is one of the few OECD countries without a converged regulator, or sector specific regulatory legislation for broadcasting.

Certainly, telecommunications is tightly regulated. Regulatory arguments are often mind-numbing and multi-combatant - but there have been great outcomes for consumers and business, such as new wholesale network pricing rules that have driven down prices, and the introduction of number portability (the ability to keep your number when you switch phone companies) - to name but two. And of course Telecom's vertical monopoly was broken.

Consumer director Matt Williams demo'ing the Vodafone TV Digital Recorder on October 4: A convenient solution, but with Sky TV driving its content, Mr Williams says there are no plans to approach a provider like Netflix for additional, full-blooded alternative content. Sky TV's contracts with ISPs are confidential, but the Commerce Commission warning letter indicates the broadcaster has internet service providers on a tight leash; Telecom apparently even had to ask Sky TV's permission before entering a minor marketing partnership with

Innovative solutions

Non-exclusive online rights: Sector-specific legislation could include innovative competition solutions such as allowing Sky TV to keep its broadcast TV near-monopoly, but making online-rights non-exclusive - giving new market entrants a little breathing space and opportunity.

Sky TV notes that TV and movie studio rights are spread widely over different broadcasters. But of course free-to-air shows or older movies have no pulling power for online services. The likes of QuickFlix, Ezyflix and the stunted NZ versions of Apple's iTunes and Google's Play would have a lot more pulling power if they could show juicy premium content like HBO series, and a decent swathe of recent-release A-list movies.

Right now, over-the-top competitors (at least the legal ones) are failing to gain any traction whatsoever. And Sky TV is dragging its heels on integrating iSky into MySky if viewers had the option to buy on-demand elsewhere.

We need this to happen.

Anti-siphoning sports: Even more potently, a lot of countries have so-called "anti-siphoning" legislation, which prevents a pay TV provider from monopolising a major sport unless free-to-air broadcasters have declined to bid. across the Tasman, where anti-sophoning legislation is in place, there's been fierce debate over what events it should cover - and whether it covers finals or a whole competition in any given sport etc. But at least their having a debate - unlike the silence among heavily Sky TV-lobbied politicians here.

Sky TV argues anti-sophoning style measures would mean it would make less money from sport which mean it would spend less on All Black broadcasting rights, weakening the national team. Against this, sponsors would gain a broader audience.

I undecided on siphoning - but I'd at least like to see some active discussion outside of the World Cup.

Multicasting: Vodafone has just launched its UFB plans, including a decoder that offers Freeview, a modest selection of ondemand movies and Sky TV.

Some see content as the killer app for fibre. But a clone of Sky TV's service, offered at the same price, is not compelling. 

Under the duo's partnership (similar to Sky TV's contacts with other ISPs), Sky buys the content, and Vodafone supplies it to the customer.

Vodafone says it won't go a company like Netflix for an alternative, full-blooded TV and move lineup. What a much more exciting UFB world it would be if it (or Telecom) did. Fully street-legal Netflix, conveniently delivered directly to your big screen TV, and unmetered. Now that would be compelling.

Intriguingly, Vodafone's Sky TV service is delivered over a separate bit of fibre (or at least in virtual terms; one bit of fibre runs into a home).

Chorus supplies this "multicast" service.

Crown Fibre Holdings' strategy manager Rohan MacMahon tells NBR that the Crown company made a low-cost multi-cast service part of all Local Fibre Company contracts (that is, Chorus, Northpower, Ultrafast Fibre and Enable - the four companies that are building the UFB networking, and wholesaling access to ISPs).

Right now, the main benefits of the multicast fibre is that TV and video content can be unmetered (that is, not count toward your datacap), and that extra bandwidth can be provided if necessary so your regular internet use is not affected (so if you're say, on a 30Mbit/s plan, you could actually get more bandwidth if your TV and movie downloading demands it).

That's appreciated. Thanks CFH.

But now imagine that multicast link was also utilised for separate billing, so the content provider could have a direct relationship with a household. That would also have potential to exploit the power of the UFB to open up content competition.

If it's not, and online content rights aren't unbundled, the worst-case scenario is the government just spent $1.35 billion to help prop up Sky TV's monopoly.

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