Ofcom has scrapped rules forcing Sky to offer its flagship sports channels to rivals on discounted terms, arguing that the rise of competitors such as BT and increased availability of its channels means there is now plenty of choice for consumers.
The media regulator introduced the so-called “wholesale must offer” ruling in 2010, which forced Sky to offer Sky Sports 1 and Sky Sports 2 to rivals at a discount to its retail price, to ensure the satellite broadcaster did not abuse its dominant position in the market.
The regulator cited the rise of competitors such as BT, which has spent billions of pounds on to crack Sky’s stranglehold on top-flight sports such as Premier League and Champions League football, and the increased availability of Sky’s channels.
These include newer players such as TalkTalk TV and Sky’s internet-based Now TV, which is available on new services such as EE TV, Apple TV, games consoles, smartphones and tablets.
“Following consultation and evidence from stakeholders, Ofcom has found that Sky is now supplying sports widely on commercial terms outside of the regulation,” said Ofcom. “Given the evidence of Sky’s supply arrangements, Ofcom is lifting the wholesale must-offer regulation. However, Ofcom will continue to monitor closely market developments and, if necessary, will quickly step back in. Ofcom wants to be sure that consumers continue to have access to, and a choice of, packages and services containing Sky Sports 1 and 2.”
Ofcom began a review of the controversial ruling, which has been the subject of numerous legal challenges and counter challenges, late last year in light of significant changes in the UK market.
In its decision to remove the regulation Ofcom highlighted BT’s rise as a competitor to Sky, including now controlling 25% of Premier League games and all Champions League matches, as well as new players such as Vodafone.
Ofcom said that Sky was offering its channels on commercial terms agreed by rivals outside of being forced by the regulations in all cases except on BT’s YouView service, to which the UK competition regulator forced Sky to start supplying its sports channels in November last year.
“Ofcom expects all providers to engage willingly, constructively and in a timely manner to ensure sports continues to be made widely available to viewers,” said Ofcom. “Ofcom continues to monitor the pay-TV market closely. Should evidence emerge of practices which we consider to be prejudicial to fair and effective competition, we will quickly reassess the need for regulation.”
BT said that there still needs to be “effective remedies” on Sky because the company still dominates the pay-TV market and that it is considering legal action over Ofcom’s decision.
“BT is very disappointed that Ofcom has proposed the removal of the wholesale must offer obligation on Sky,” said a spokesman. “We will consider our legal options in the light of this decision. 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.”
Virgin Media, which lodged a complaint about thew way Premier League TV rights are sold which prompted an Ofcom investigation, said that it was still concerned about the escalating costs of the rights and restrictions on how many games are aired.
“We note Ofcom’s decision on wholesaling sports channels,” said Tom Mockridge, chief executive of Virgin Media. “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. [They are] denied live games on TV and [are] paying higher prices.”
City analysts called the removal of the regulation a “win” for Sky, with Citi telling investors in a note that it would not be material to Sky’s business but that it had “bragging rights” over rivals.
“Whilst we welcome the removal of this regulation on Sky we do not believe that this development is likely to result in any significant shift in the UK pay-TV landscape,” said Andrew Hogley, a telecoms analyst at Mirabaud Securities.
“The regulation applied only to a small number of TV providers, principally Liberty Global’s Virgin Media and BT, but we note that Sky has also been reselling the content to several other platforms. Sky generates material revenues from these wholesale arrangements and with the cost of the football rights set to step up significantly from next season we believe that Sky will want to continue to wholesale the rights widely.”
A spokeswoman for Sky said: “We are pleased that Ofcom has decided to remove the ‘wholesale must-offer’ condition. As the evidence demonstrates, we are, and have always been, more than happy to make our channels available on other platforms.”
