By: Russ
Ofcom — untimely action on Sky Picnic proposal
I was just criticised in the comments section of this blog along the lines that our recent FT piece was complaining about Ofcom’s maltreatment of Sky’s Picnic application when all Ofcom are trying to do is regulate a dominant player. Fair criticism — so let me explain the basis of my personal concerns of how Ofcom are treating Sky (I’m not employed or paid by News Corp; in fact I’m a shareholder of their competition).
My principle concern is delay. Sky were attempting to launch a new product and Ofcom put the brakes on it. Here’s the timeline:
17 Apr 2007—Sky submits Picnic Application to Ofcom
26 June 2007—Ofcom announce they have sufficient information to launch consultation
4 Oct 2007—Ofcom consult on Sky Application
14 Dec 2007—Ofcom consultation closes
?? ??? 2008—Ofcom approve Sky Application
Elapsed time from final proposal to consultation: 3.5 months
Period for consultation: 10 weeks
Elapsed time for final approval: ? months
Compare that to the BT Settlement, where Ofcom received a final proposal at nearly the same time in June (2005):
27 June 2005—Ofcom’s discussions with BT on the Undertakings finalised
30 June 2005—Ofcom consult on BT Undertakings
12 Aug 2005—Ofcom consultation closes
22 Sept 2005—Ofcom issue final statement, approving BT Undertakings
Elapsed time from final proposal to consultation: 3 days
Period for consultation: 6 weeks
Elapsed time for final approval: 3 months
* * *
As you can see — it took Ofcom less time to both consult on and finally approve the BT Settlement than it did for Ofcom to even launch a consultation on the Sky Picnic Application. And final approval? Well, the clock is still ticking on that one…
I use the BT Settlement consultation for comparison purposes for several reasons: (i) it was the biggest Ofcom market intervention ever so presumably it required a lot of thought and planning; (ii) it involved a firm — BT — that was accused of competition law violations; (iii) the proposal - consultation - approval was around the same time of year. By contrast no matter what your opinion of Sky is, this Picnic application is much much smaller in impact.
Ofcom’s delay has sent the wrong signal to the industry. New product launches — even in service areas previously cleared by the regulator such as pay services on DTT — can be held up for months. The consultation timing is arbitrary. This is regulatory uncertainty pure and simple. The delay will harm consumer choice and Sky’s revenues.
This is of course independent of the substantive concerns and issues associated with the Sky proposal. I personally think Ofcom have not raised concerns about Sky’s proposed services that could not otherwise be dealt with under its competition law powers on an ex post basis, if they should ever materialise.
To be fair to Ofcom, I have not studied its consultation timing in detail. But the BT Settlement consultation shows that Ofcom can act with great alacrity when it is motivated. I think special care should be taken to act quickly when a commercial product or service is ready to be rolled-out to consumers.
Jan 26th 2008
Dear Sir,
Further to my earlier posting and your additional material. I cannot offer justification for how Ofcom operate but I do offer the following.
BSkyB has been operating a de facto Digital Platform and while claiming to all including the Select Committee that the platform is ‘Open’ to anyone. Ofcom has until the Rapture Appeal accepted without question or any detailed investigate accepted such claims.
However these claims are in fact based on a lie. The platform is not ‘Open’ and there has been an electronic document produced by BSkyB titled ‘Sky Platform Model’. Ofcom used this model to great affect when anyone complained about BSkyB’s level of fees for technical services. The model, which I should point out, Rapture TV including myself has not seen for legal reasons but our QC’s has. However any intelligent person who knows how to read accounts and understands the technology can workout what Sky has been doing in the model. Plus theres a number of facts and figures that have been published from the model.
Rapture provided to Ofcom for further investigation all the BSkyB Companies’ House accounts for some 20+ businesses. Its clear from these public document that Sky makes a profit from supplying the consumer satellite equipment to the households. The profit is first earned from the financial subsidy. Ofcom was give documents that showed that it was very likely that the equipment subsidy was reclaimed and repaid with 12 months of the equipment being fitted in the consumers home. Sky documents back this up.
Ofcom had clearly never bothered to look into this issue and had simply relied on the ‘Sky Platform Model’ to back up their claims that BSkyB had invested ‘Billions’ in the consumer equipment. However as Rapture TV has helped expose the sky model flies against the public limited companies accounts. Plus there’s the inconvenient fact that for the equipment to be valued in ‘Billions’ the standard Sky set top box would have been valued in the many hundreds of pounds in the first place. Sky In-Home Service Limited accounts show and you can find them on the Rapture website, that Sky values the digiboxes at cost plus the realisable value when istalled in the customers home.
Similar spec Philips Set Top Boxes for Top Up TV, which include Conditional Access, are retailed without a subsidy for £39.99 including VAT. So there is clearly a question mark over BSkyB’s model claims.
I believe there is some truth in the fact that Ofcom has shown its self to be incapable to regulate large vertically integrated businesses without other rulings to follow.
Your comments concerning BT are interesting as BT is now regulated only after the Competition Commission was involved and after rulings were handed down regarding externalities and call charges.
It was clear at a meeting with Ofcom in December 2006 that Ofcom had been shocked by the outcome of the reviewed guidelines for TPS relating to Sky. Ofcom had not anticipated BSkyB’s use of the new 2006 guidelines and the increases in fees. In fact a member of the enquiry team confirmed in that meeting that it had not gone the way they had expected. It was also said that they had used the same thinking as used in the telecom industry.
The problem with using that thinking is in telecom there are many providers and in Dsat there is only one provider. Clearly Ofcom has made major mistakes when it comes to the regulation of BSkyB. The Rapture TV appeal will set down some much needed ground rules in the area of regulating BSkyB. I believe one of the major problems Ofcom has now found its self with is the fact that BSkyB has misled them over costs to the platform and misled them over technology concerning how the Condition Access works with the EPG and add to this the fact that BSkyB raided the ITV shares to prevent a competitor and then they try to roll out the same de facto technology on to freeview. The legal fight in the High Court with Virgin has also shown that BSkyB cannot be trusted to act in a fair manner and needs to be regulated. Ofcom has until now failed to regulate anything to do with Sky. The Rapture TV case shows that very clearly.
Many MP’s are up in arms as to how Sky and Murdoch can get away with these actions while also owning 40% of the UK’s newsprint.
I think it is telling that the same promises from senior BSkyB management were made to the Culture, Media & Sport Select Committee for the roll out of Picnic as was made in the 90’s for Sky Digital and the ‘Open’ platform and particular how they would allow the NDS supplied encryption technology to be supplied to anyone else supplying consumer equipment.
Finally I have seen a partern in the Ofcom operation. When Rapture TV wrote its first or second letter of complaint concerning BSkyB, Ofcom announced a Market Review this was July 2006. The market review reduces if not prevents any formal investigating into a competition type complaint because the market review may change the way regulation takes place etc.
The market review which started July 2006 has still not finished and has been shelved to be combined with the Pay TV Market Review. Rapture TV and others attended a meeting at Ofcom for the original market review on the 1st of Feb ‘07 and we still have the handout which includes the next proposed meeting/consultaion dates. These further meetings never took place. The Virgin Cable/BSkyB fight kicked off just 3 weeks later.
I believe you are right to highlight the inconsistant standing of Ofcom as I think there are endless examples to refer to. However I would not look at BSkyB for any leadership on this issue. BSkyB are simply trying to extend their control over another delivery platform and at last they have been exposed as the dangerous operator that they are. So I hope that Ofcom do the right thing and delay any actual decision on the Picnic proposal until the Pay TV Market Review has reported and in the end refuse BSkyB permission to launch the NDS technology altogether.
I think that refusal will be justified as BSkyB has clearly been trying to bully its proposal through by announcing channel line ups and making claims that the look forward to offering British consumers extra choice. Since BSkyB does not have permission to launch Picnic then it would appear to be unwise to make such statements but shows that BSkyB thinks it can do what every it wants.
I hope you find the above interesting.