Ofcom inquiry halts Sky plans for Freeview channels

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Ofcom has put the brakes on Sky's summer launch of pay-television channels on Freeview by starting a lengthy consultation on the effect of the satellite TV operator's plans on competition in the digital television sector.

Sky said in February that it planned to replace its three free channels on Freeview with pay-TV channels in the summer. Along with its partner, National Grid Wireless, Sky has formally applied to change the terms of its licence to broadcast over Freeview, triggering a public consultation into the issue by Ofcom. The regulator will not publish its initial findings until the autumn.

Ofcom wants to gauge whether Sky's plans to launch subscription channels over Freeview could result in the satellite operator building a dominant position in the digital television market.

This month, Ofcom confirmed that Freeview had overtaken Sky in subscriber numbers.

Competitors are concerned that Sky is "muddying the waters" and confusing consumers over what Freeview offers.

Sky has argued that Setanta and Top Up TV already offer pay-TV services through Freeview. It said that Ofcom opened up the free-to-air market for subscription services in April 2006, and that Sky's plans are aligned with the regulator's previous comments. A source said that the public consultation contradicts previous regulatory guidance and that the speed of the consultation is "glacial". A Sky spokesman said that its plans would "increase competition and bring better choice of programming to the Freeview platform".

Ofcom denied that the consultation contradicted previous guidance, arguing that its statement in 2006 was "generic and general" and that it said at that time that it would treat each application on a case-by-case basis. "Sky is an organisation with a very strong market position in pay-TV. It is therefore essential that we properly consider any competition issues arising from the proposal," the Ofcom spokesman said.

Sky has come under unprecedented regulatory scrutiny over the past year. Ofcom has already launched an investigation into competition in the pay-TV market in the UK after complaints from Virgin Media and Setanta. It has also launched separate investigations into the impact that Sky's purchase of a near-18 per cent stake in ITV will have on the terrestrial broadcaster and its public service remit. The Competition Commission is also investigating the Sky/ITV deal.