Ofcom has released a consultation paper (PDF) setting out its proposal to remove the requirement in the licences for digital terrestrial television (DTT) multiplexes B, C and D that any services carried are provided on a free-to-air basis, other than with Ofcom’s prior consent. Multiplex B is operated by a wholly-owned BBC subsidiary, and C and D are operated by National Grid Wireless (previously Crown Castle UK).

The requirement seems to stem from a commitment to free-to-air content being included as part of the Freeview consortium’s bid for the multiplex licences in 2002: the Freeview consortium had comprised the BBC, Crown Castle and Sky, and the Independent Television Commission (ITC) converted the consortium’s proposals into binding requirements that no pay TV channels would be allowed on multiplexes B, C and D, and that Sky would not be allowed to operate more than three channels on DTT.

Ofcom now states that “it is unclear” whether that requirement helps Ofcom fulfil its duties under the Communications Act 2003. The consultation paper sets out Ofcom’s thoughts on two particular proposals for change: removing the restriction on all three multiplexes (which Ofcom favours), and removing it on a case-by-case basis. The main argument Ofcom finds in favour of the latter option seems to be to prevent Sky from converting its free-to-air channels on DTT to pay TV channels.

It is interesting to speculate on the motivations behind the Freeview consortium’s proposal to limit the use of the multiplexes to free-to-air content. By removing a potential source of competition for its satellite pay TV business, this restriction would seem to have been in Sky’s interests. Whilst it might have suited Sky, the ITC’s decision to include a prohibition on pay TV in the multiplex licences seemed nevertheless to be a somewhat unusual restriction for a regulator to impose. It is not wholly surprising that Ofcom should consider whether this restriction is actually necessary. But one wonders whether the prohibition on pay TV and the restriction on Sky’s access to DTT capacity were not part of a package agreed with all parties when the licences were issued. And it seems odd that the Ofcom paper does not consider whether the restriction on Sky channels on DTT may also be unnecessary, or even mention any possibility of a review of this restriction.

As an aside, one technical aspect of Ofcom’s paper deserves a little nit-picking. In discussing the benefits of preventing Sky from converting its three DTT channels (Sky Three, Sky News and Sky Sports News) to pay TV channels, the paper describes a risk that Sky “could use its three channels to leverage its market power in the provision of pay TV services into DTT”. Ofcom considers this risk not be significant. But it seems wrong to identify that risk at all. There is no clear mechanism through which removing the pay TV prohibition could increase the risk that Sky uses its market power in the provision of pay TV - or, more specifically, uses one if its (many) dominant positions within the pay TV supply chain - in an anti-competitive manner. Here Ofcom seems to conflate the possible existence of a relationship between the price that Sky charges for its pay TV packages and the availability of Sky channels on DTT, with the scope for Sky to use a dominant position to engage in anti-competitive conduct in broadcasting markets. Even if Sky were to convert its three DTT channels into pay TV channels, and even if this were to enable Sky to charge a higher price for its satellite pay TV packages, this would not represent any leveraging of market power, at least in the sense of European competition law.