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Ofcom order requiring BSkyB to sell wholesale access to sports channels reinstated by Court of Appeal

Out-Law News | 18 Feb 2014 | 4:47 pm | 3 min. read

The Court of Appeal has reinstated an order made by telecoms regulator Ofcom which required pay-TV operator BSkyB (Sky) to sell wholesale access to its sports channels to rival providers at a set price.

Its ruling overturns a judgment of the Competition Appeal Tribunal (CAT) of  March 2013, which it said was based on an "incomplete set of conclusions".

"There remain significant, independent, competition concerns based on the rate-card price and penetration discount, as found by Ofcom," said Lord Justice Aikens in his leading judgment. "The reasons that the CAT gave for not considering the matter further were inadequate."

"The only way in which this error can satisfactorily be dealt with is for the order of the CAT ...  to be set aside and for the matter to be remitted to the CAT for further consideration, findings and conclusions," he said.

In a statement, Sky said that the Court of Appeal's judgment did not "alter in any way the CAT's fundamental findings ... that Sky engaged constructively with other distributors over the supply of its premium sports channels, and that Virgin Media is able to compete effectively with Sky on the basis of Sky's rate card prices".

Ofcom imposed a 'wholesale must offer' (WMO) obligation on Sky in 2010 following an investigation into the pay-TV market. It was intended to enable rivals including BT and Virgin to compete effectively due to Sky's dominance in the market for premium sports channels at the time, and requires the company to offer access to its Sky Sports 1 and Sky Sports 2 channels at prices set by Ofcom.

Sky has been the leading player in the pay-TV market in the UK for the past 20 years, and the company currently has the rights to most of the broadcast rights for live games in the Premier League. BT now owns some of the rights to show live Premier League football on its new BT Sport channels, which it made available last summer. At the end of last year, it won exclusive rights to broadcast 350 UEFA Champions League and Europa League matches for three seasons from 2015/16.

BT has welcomed the Court of Appeal's decision to send the matter back to the CAT as it is keen to agree access to Sky Sports 1 and 2 on reasonable terms so that it can offer them as part of its YouView platform.

According to the Court of Appeal's judgment, the reasoning given by the CAT for overturning the WMO imposed by Ofcom was that the regulator had "misinterpreted" evidence of wholesale negotiations between Sky and its rivals. The company was "acting for ordinary profit/revenue-maximising commercial motives" and it could not be inferred from the evidence that "the alleged incentives were conditioning Sky's conduct", the CAT found.

Lord Justice Aikens in the Court of Appeal said that the CAT had been under a duty to undertake three exercises in relation to the appeal: to correctly analyse and understand the extent of Ofcom's findings of fact and grounds for exercising its jurisdiction under the competition rules; to ensure that it fully understood the extent of Sky's challenge; and to fully work out what impact Ofcom's coming to a different conclusion would have had on its findings of fact and exercise of judgement. He said that the CAT had failed to properly do so.

"The CAT identified Ofcom's 'core competition concern' as being the fact that Sky deliberately withheld from other retailers the wholesale supply of its premium channels," he said. "Although the CAT did identify 'Ofcom's other competition concerns ... these did not include Ofcom's finding that Sky's insistence on the rate-card price and discounts by reference to platform penetration was one of Ofcom's competition concerns."

"The CAT had to deal with Sky's appeal 'on the merits' of Ofcom's conclusions on what its competition concerns were and why those had led it to settling the WHO remedy and to setting specific prices for wholesaling the [premium sports channels] to competitors of Sky in the standard definition versions. On my analysis, there can be no doubt that the rate-card price and penetration discount issues were part of Ofcom's competition concerns, even if they were not its 'key' concern," he said.

In a statement, Ofcom said that it welcomed the decision.

"Ensuring fair and effective competition in the pay-TV market has always been Ofcom's objective," it said. "Ofcom's 2010 decision that Sky must offer premium sports channels to providers was designed to deliver choice and innovation to consumers through greater competition."

"This is a significant win for Ofcom and supports the regulator's discretion to determine what it considers are 'competition concerns' and to impose measures necessary to ensure 'fair and effective' competition in the market," said competition law expert Angelique Bret of Pinsent Masons, the law firm behind Out-Law.com. "It will be interesting to see how the CAT deals with this on remittal back."

Editor's note 19/02/14 This story was updated to include a quote from Angelique Bret.