BT inevitably counter-attacks Sky with Ofcom plea

UK telco BT has called on regulator Ofcom to investigate the UK pay TV market in what amounts to a retaliation for Sky’s similar call two weeks ago.

The only surprising thing about this move is that it took as long as it did. BT has been moving aggressively into Sky’s premium TV territory for some time, principally with the acquisition of exclusive sport content. On top of this it’s set to acquire the UK’s biggest mobile operator – EE – which would make it arguably the dominant multiplay force in the country.

Sky is understandably alarmed by this and opened a new competitive front when it called on Ofcom to refer BT to the competition authority over alleged failings by its Openreach wholesale division, which Sky is painfully reliant on to deliver its broadband and VOD services. BT now seems to be saying ‘two can play at that game’ and, to paraphrase von Clausewitz, regulation is merely the continuation of competition by other means.

The latest offensive was spearheaded by BT Consumer Division CEO John Petter, who in a speech to the Broadcasting Press Guild called on Ofcom to expand its Digital Communications Review to encompass pay TV. Petter reckons a lack of competition in that market is leading to poor value for consumers.

“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,” said Petter. “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.”

Ed Barton, Analyst at Ovum, thinks we’re likely to see plenty more of this sort of thing. Naturally both Sky and BT are complaining about markets in which they are both challengers and their respective actions might serve to remind Ofcom that what is sauce for the goose is sauce for the gander,” he said.

“As operator multiplay strategies proliferate with quad play coming to the fore over the next eighteen months, we expect this will become increasingly common. Operators are happy to aggressively discount or even give away the components of the bundle which aren’t core to their long term business objectives and how these are accounted for will be a critical commercial and regulatory issue over the coming years.”

Paolo Pescatore, analyst at CCS Insight, stressed the distinction between regulation and proper competition. “It is just the latest tussle between both companies at an important time when Ofcom is seeking to conduct a strategic review of the digital communications market,” he said. “The timing of this is particularly important given that the last review was conducted a decade ago.

“Around half of all UK households have yet to sign up to a pay TV service, so there are plentiful opportunities to take video/TV to the masses. Operators need to differentiate beyond pricing alone and this is where content will play an integral element. Both companies are coming from opposite spectrums, but are firmly on a collision course to compete head on in multiplay. For now BT seems well placed with its network assets, however it still lacks a strong line-up of content.”

There’s something rather undignified about these two giant commercial operations going running to Ofcom about how unfair it all is, while stressing their concern for consumers in their public proclamations. But the genie’s out of the bottle now and Ofcom can expect to be in the middle of this UK mutliplay spat for years to come.