BIB, led by Rupert Murdoch's British Sky Broadcasting and British Telecommunications, promises to be a formidable force in the nascent market for interactive digital TV services - including internet access, home banking, home shopping and games. The Commission, which has blocked a number of planned pan-European media ventures in the past, views this as a test case for interactive services.
The Commission is likely to issue an ultimatum to BIB in the next two weeks, following the companies' failure to address concerns that they will restrict rivals' access to their network and subsidise set-top decoders for their services.
"If there's a threat to the BIB consortium, which might involve a block on the subsidy for the decoder, it would obviously be an extremely serious matter for the future of digital broadcasting by satellite," said Nigel Reed, an analyst at Paribas Capital Markets. "It's potentially a large threat to BSkyB's digital future."
If the companies do not offer concessions, a spokesman at the Commission said it would not allow BIB to proceed. However, he said the decision would not be "official" and would give the companies another chance to satisfy the Commission's demands.
"Obviously we've been in discussions with [Competition Commissioner] Karel Van Miert, and if he's got any concerns we'll do our best to try and discuss them with him," said a BT spokesman.
He would not comment on whether BT and its partners plan to submit changes to the venture, and said the companies "look forward to continuing our negotiations with the Commission". The spokesman said that BIB expected to begin operating between the summer and year- end, "depending on how discussions go".
BIB, a joint venture between BSkyB, BT, Midland Bank and Matsushita Electric Industrial, plans to invest pounds 265m over five years to develop interactive digital TV services for sale in the UK. The services would be broadcast over a digital satellite network to be launched by BSkyB this year, and customers would order services over BT's UK telephone network.
BIB plans to subsidise the cost of digital decoders necessary to receive the services, reducing the price per unit by 50 per cent to around pounds 200. Another EU official said in January that the Commission was concerned about the subsidies, given BT's and BSkyB's dominant positions in their respective markets, and about the control they would have over competitors' access to their network.
The Commission wants to end its nine-month investigation of the proposed alliance soon. There is no legal deadline for EC investigations of joint ventures such as BIB, however, and several have dragged on for well over a year.
Among the Commission's main concerns is that BIB will have exclusive rights to the technology used for the set-top receivers, and that BIB could assume a "gatekeeper" role that would enable it to bar competitors from the market.
The Commission is also concerned that British Telecom will have no incentive to upgrade its existing networks as part of its participation in BIB, as it would not want to compete against its own joint venture. BT controls access to about 90 per cent of the UK's domestic phone lines.
The Office of Fair Trading, the Independent Television Commission and Oftel have expressed their support for the project, BSkyB said.
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