Ofcom orders Sky Sports price cut for rivals
Updated on 31 March 2010
The media regulator Ofcom rules Sky should sell its Sky Sports 1 and 2 channels to rivals at wholesale prices in a bid to ensure "fair and effective competition".
The decision by Ofcom follows a three-year long investigation into pay-television market.
The media regulator said Sky should drop the wholesale price it charges rivals such as Virgin Media and BT for its sports channels by 23.4 per cent.
The move would mean Sky being paid £10.63 per subscriber per month who signed up to Sky Sports 1 and 2.
The wholesale price for packages which include Sky Sports 1 and 2 will be cut by 10.5 per cent to £17.14.
Ofcom had begun its investigation in March 2007 after concerns were raised by Virgin Media, BT, TopUp TV and Setanta, which has since gone bust.
The regulator said the decision would "fair and effective competition".
"Ofcom has concluded that Sky has market power in the wholesale provision of premium channels. Ofcom has also concluded that Sky exploits this market power by restricting the distribution of its premium channels to rival pay TV providers.
"This prevents fair and effective competition, reduces consumer choice and holds back innovation and investment by Sky's rivals.
Analysis: technology correspondent Benjamin Cohen
The pay TV giant says it is being penalised for having invested billions in sports over the years, building their market share fairly.
It is now almost impossible for them to undercut their rivals when it comes to the price of Sky Sports 1 and 2. This is because they must charge their rivals 23.4 per cent less than their retail price for a standalone channel or 10.4 per cent less for the bundle of Sky Sports 1 and 2 together.
This means, a rival could offer them at cost price or even as a loss leader. If Sky try and compete, the amount they charge their rivals for wholesale access goes down too.
But Sky are also a winner in some ways today. In return for the wholesale access they must offer rivals, they will be able to sell Sky Sports via Freeview. 18m homes have at least one Freeview set, giving Sky the potential to gain access to an entirely new market.
Buried on page 13 of the Ofcom report, it's claimed that the rules announced today will result in an increase of Sky's revenue by £600m over the next five years.
However BSkyB said it would challenge the ruling before the Competition Appeal Tribunal.
"Clearly we're disappointed with Ofcom's decision, which we think they've got badly wrong," the broadcaster's chief executive Jeremy Darroch said.
"The prices we charge are fair. They're fair for our customers and they're fair for the companies that we supply our channels to.
"I also think it's extraordinary that Ofcom are pushing ahead with their findings, without any evidence of breach of competition law, without any evidence of excess profitability or prices."
Sky's stance is being backed by sports governing bodies, including the Football Association and the England and Wales Cricket Board.
They claim Ofcom's decision will damage their businesses.
