BT Consumer CEO calls for Ofcom to tackle Sky dominance

John Petter (pictured), CEO of BT's Consumer Division, has called on Ofcom to formally amend the scope of its Digital Communications Review to include pay-TV, citing high prices and poor outcomes for consumers arising from a lack of competition in pay-TV.

In a speech to the Broadcasting Press Guild, Petter compared the falling prices, rising speeds and strong international performance of the UK broadband market with the high prices and bad outcomes suffered by UK consumers in pay-TV. Petter hit back at Sky's calls for the break-up of BT, describing them as a smokescreen designed to obscure the real market failings in pay-TV, where Sky is the dominant player.

BT believes Sky pay-TV customers are paying close to £50 a year more than the EU average for basic pay-TV channels and potentially sums greater than £75 a year more if they opt for premium sports and movie packages*. Ofcom data also shows that UK household costs for pay-TV have stayed high while broadband costs have fallen.

Commenting on the figures, Petter said: Whereas in the energy market regulators have criticised the Big Six operators, in pay-TV Sky has a 64 per cent share, so there is really only the Big One. Relative to EU averages Sky customers are paying around a half a billion pounds more per year for the basic packages of pay TV channels*. Switching in pay-TV is 50 per cent lower than the levels seen in broadband, so it is clear we just aren't seeing the right levels of competition for Sky .

Petter attributed the driving factor behind this difference to a lack of effective competition in pay-TV. He contrasted the pay-TV and broadband markets in terms of market concentration, switching and wholesale markets. The broadband market has four major players but none with over 32 per cent market share, this is in stark contrast to the pay-TV market with one dominant player with a 64 per cent share leaving major barriers to entry for new players.

Switching in the broadband market is regulated and gaining provider led, this is in contrast to the pay-TV market, where switching is unregulated and companies are able to save customers leading to low levels of switching. The broadband market is regulated at a wholesale level allowing all players access on an equal basis, while in pay-TV there are weak wholesale obligations that only apply to Sky Sports 1 and 2.

Petter saluted the performance of BT Sport but said that it hadn't changed the overall market dynamics given the dominance of Sky. He cited the fact BT Sport has attracted 2.4 million viewers who weren't previously viewing Sky Sports, as evidence of a large unserved part of the population unable to pay the high prices demanded by Sky. Sky's decision to increase prices in response to the launch of BT Sport was described as evidence as being based on a calculation that customers don't have anywhere else to go .

Petter described in detail each of the factors diluting competition in the basic pay, movie and sports segments of the pay-TV market as contributing to an overall market failure entrenching the dominance of Sky. He noted that Ofcom's approach to regulating the telecoms market had been successful in delivering positive outcomes for consumers and businesses, but called on them to apply the same degree of rigour to address competition problems in pay-TV.

We think Ofcom should heed the call of Sky's biggest shareholder. James Murdoch once said in relation to Sky that 21st Century Fox fought for a level playing field and to have competition policy applied with an even hand'. But when it comes to competition in pay-TV, the message from Sky seems to be talk to the hand'. We think Ofcom should make Mr Murdoch happy and give the UK a competitive pay-TV market that is fit for the next decade .

*Using data from Analysys Mason Pay-TV pricing and triple-play review November 2014, 10.5 million UK Sky customers are paying £4.34 per month above the European average on basic TV packages. Sky customers that take premium options like sport and movies are paying £6.33 per month above the European average. The Analysys Mason report notes that pay-TV packages differ substantially in terms of the range and quality of channels offered.

Photo credit: C1 Photography

www.btplc.com

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