Video services

BT Demands Action on Sky's Pay-TV Dominance

UK telecom incumbent BT has urged the regulator to look into Sky's dominant position in the pay-TV market during its review of the communications market, claiming a lack of competition has led to spiraling costs and "poor outcomes" for customers.

In a statement, the operator contrasts the situation in the pay-TV sector with that in the UK's broadband market, which, it says, has been characterized by falling prices, rising speeds and "strong international performance."

Relations between BT Group plc (NYSE: BT; London: BTA) and Sky have grown increasingly frosty since the two players invaded each other's turf and BT's latest comments emerged shortly after Sky had called on regulatory authority Ofcom to break up the BT business in the interests of spurring broadband competition. (See BT Guilty of 'Under-Investment,' Says Sky.)

Along with other companies that use BT's network to provide broadband services, Sky reckons that separating BT's infrastructure division from its retail business would prevent the incumbent from being able to squeeze broadband rivals through a mixture of high wholesale and low retail prices. (See Split BT to Lessen Regulation, Says CityFibre and Vodafone May Buy Content to Fight BT, Telefónica.)

Ofcom has previously indicated that it will consider all options during its review, including BT's "structural separation," although it seems unlikely to take such a dramatic step. (See Ofcom Does Not Rule Out BT Carve-Up.)

But John Petter, the CEO of BT Consumer, reckons Sky's approach to Ofcom is nothing more than a "smokescreen" designed to obscure failings in the pay-TV sector.

According to BT, Sky customers are currently paying about £50 ($77) a year more than the European Union average for basic pay-TV channels. If they take premium sports and movie packages, that figure grows to more than £75 ($116) a year, says the operator.

"Whereas the energy market regulators have criticized the big six operators, in pay-TV Sky has a 64% share, so there is really only the big one," says Petter. "Switching in pay-TV is 50% lower than the levels seen in broadband, so it is clear we just aren't seeing the right levels of competition for Sky."

Want to know more about pay-TV subscriber trends? Check out our dedicated video services content channel here on Light Reading.

BT has spent heavily on sports rights in an attempt to establish itself as a major pay-TV rival to Sky, but is clearly struggling to make inroads in this market. (See BT, Sky Splash £5.1B on Premier League Rights.)

It pointedly notes the UK's broadband market now has four major players, none of which has a market share of more than 32%.

Not surprisingly, Sky rejects suggestions the pay-TV sector is in any way defective. "The reality is that, in a competitive market, customers are choosing Sky in greater numbers and staying with us for longer because of the quality and value that we offer," says a Sky spokesperson.

"It is strange to hear BT talk about high prices when they are about to increase the price of BT Sport for Sky TV customers by 48%," the spokesperson adds. "This looks like an attempt to deflect attention from the real problems that exist in broadband, where consumers are suffering because of BT's under-investment and there is concern about competition in the future."

Earlier this year, Ofcom announced plans to carry out its first major review of the communications sector in a decade following moves that could radically change the competitive environment.

In particular, BT has agreed to pay £12.5 ($19.4 billion) for EE , the UK's biggest mobile operator, while Hong Kong's Hutchison Whampoa Ltd. (Hong Kong: 0013; Pink Sheets: HUWHY) is buying Telefónica UK Ltd. (O2), the country's second-biggest mobile operator, for £10.25 billion ($15.9 billion). (See BT Locks Down £12.5B EE Takeover Deal and Telefónica Seals $15.2B O2 Sale to Hutchison.)

Hutchison Whampoa already owns Three UK , the smallest of the four mobile network operators, but merging this business with Telefónica UK would create a new mobile market leader.

While Ofcom appears mainly concerned about competition in the broadband and mobile markets, quad-play offerings that include pay-TV services are becoming a new battleground for telecom service providers.

Moreover, Ofcom already includes the cost of BT's spending on sports rights when carrying out "margin squeeze" tests to determine if the gap between BT's wholesale and retail broadband prices is sufficient for rivals to compete. (See Ofcom Maintains Regulatory Attack on BT.)

"Ofcom is carrying out a comprehensive review of the digital communications market, which is broader than our telecom review ten years ago," said an Ofcom spokesperson, when asked for a response to BT's request. "We welcome and are seeking evidence and analysis from all parties to help inform that work, and we will publish an update later this month."

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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