TV rivals join forces to press Ofcom to end Sky's dominance

Some of the biggest names in the British television industry have proposed that BSkyB, the satellite broadcaster, be broken up to boost competition.

The Independent on Sunday has learned that Virgin Media, BT Vision - the broadcast arm of BT - Setanta and Top Up TV have suggested the structural separation of BSkyB as a remedy to level the playing field in the pay-TV market.

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The four companies made the proposal to Ofcom earlier this year in a joint submission and led the media regulator to open an investigation into the pay-TV sector.

It is believed that the media groups put forward a number of possible solutions to ending what they see as BSkyB's unhealthy dominance. The separation of its content and distribution businesses is among the proposals, which also include other structural and behavioural changes that could be imposed on BSkyB.

Analysts argued yesterday that the wholesale break-up of the satellite broadcaster would be "highly unlikely".

One said: "The notion BSkyB is going to get broken up is hardly credible. However, it is clear that Sky make have to make considerable concessions to its rivals to ensure that competition for content is maintained."

As well as their joint submission, Virgin Media, BT Vision, Setanta and Top Up TV made individual submissions to Ofcom that aired grievances about the competition landscape in the digital TV sector.

A spokesman for BSkyB said: "We're in the increasingly odd position of not having seen this submission. The reluctance of these four companies to put their case fully to us does not indicate the greatest conviction in their arguments.

"Sky has grown its business from scratch and has always operated in a highly competitive environment. Where others seek to gain advantage through regulation, our success has come from focusing on customers and investing in the products and service that they want."

Spokespeople for Virgin Media, BT Vision, Setanta and Top Up TV all declined to comment on the content of their submission to Ofcom.

A recent note by analysts at Merrill Lynch argued that the market had underestimated the potential impact on Sky of the media watchdog's investigation.

It said: "Ofcom will look at the structural remedies in the form of undertakings in lieu of a referral [to the Competition Commission]. For Sky this could mean changes to the way it wholesales sports and movies."

A banker with links to companies in the pay-TV arena added yesterday: "There have been so many investigations into Sky over the years, which have found the company blameless, that the general feeling is that this one is not going to be any different. I believe that perception to be misplaced."

Of particular concern to the likes of Virgin Media and BT Vision is the apparent lack of retail competition among platforms for Sky's premium content. One option that Ofcom will examine is forcing Sky to offer transparent wholesale prices for this content in a move that will make it easier for the satellite broadcaster's rivals to offer Sky Sports and Sky Movies to their customers.

Ofcom has also asked a host of retailers, content suppliers and other businesses that deal with Sky to contribute to its investigation. But the regulator is not expected to complete its task before the end of this year.

Under the new Enterprise Act, Ofcom will no longer have to find Sky guilty of an offence to instigate structural change in the market. If, at the end of the consultation phase with the industry, the regulator concludes that market imbalances exist, it will try to come to a settlement with Sky.

If that fails, it will refer the matter to the Competition Commission. That could mean a further 18 months of deliberation before the matter is finally settled.

Analysts are generally upbeat about Sky's future. UBS said 20 per cent of non-pay TV homes plan to subscribe in the future. It added: "Our survey suggests Sky customers do not see Virgin as a credible alternative, while 45 per cent of Virgin customers would rather take Sky."

Further browsing: To see how the Enterprise Act has been used, go to www.ofcom.org.uk/consult