Regulator investigates BSkyB grip on pay-TV

Sky wars: Broadcaster's shares slump as pressure from small cable companies produces inquiry

MATHEW HORSMAN

Media Editor

BSkyB's tight grip on the pay-TV market was yesterday thrown into doubt as the Office of Fair Trading announced a wide-ranging inquiry into the broadcaster's near-monopoly in the UK.

Shares in BSkyB, 40 per cent owned by Rupert Murdoch's News Corporation, plunged 8 per cent in midday trading, before recovering to close at 428.5p, down 5.5p.

At risk are the company's supply arrangements with cable operators, as well as its exclusive sport deals, particularly for football. Jonathan Helliwell, analyst at James Capel, said: "The share price is bound to be volatile on the way down, just as it has been on the way up."

The OFT is looking into whether BSkyB's contracts to broadcast sport, including Premier League football, exclusively, are a breach of competition law. Sport has been the key driver of the company's success, and any loss of sport revenue would have an impact on its profitability, analysts said.

The OFT's announcement follows months of complaints from small cable companies, which accused BSkyB of abusing its dominant position in the pay-TV market. A call for a Monopolies and Mergers Commission inquiry was headed off early this year by informal undertakings agreed with BSkyB. These agreements are believed by the cable operators to have been wholly inadequate.

They believe that BSkyB has a near-monopoly in both film and sport programming in the UK and controls access to pay-TV systems through its domination of conditional-access technology. They have also criticised the way BSkyB bundles its channels for wholesale distribution to cable operators.

BSkyB said yesterday it pledged full co-operation to the director-general of the OFT, John Bridgeman.

But Sam Chisholm, chief executive of BSkyB, lashed out at the complaining cable companies, accusing them of "using the regulatory process to further their businesses rather than building their networks and serving their customers."

BSkyB has said in the past that the cable operators should compete openly for programming and develop their own conditional-access technology. "Anybody could do what we did," Mr Chisholm told the Independent earlier this year. "But only Murdoch had the vision and the guts."

Steven Wagner, chief executive of International CableTel, which has led the battle against BSkyB, said: "I am delighted. It is fortunate there is a new director-general, because in the past the OFT has either failed to act or has made matters worse. I hope after this exercise there will be a more balanced marketplace."

Alan Bates, chief executive of Bell Cablemedia, said: "I am very pleased that after such a long time of living with a very one-sided, dominant monopoly, the cable industry and the consumer can look forward to a fairer market."

But not all cable operators welcomed the news. The two biggest operators, Telewest and Nynex CableComms, have signed long-term supply agreements with BSkyB, and confirmed in the past that they were satisfied with the terms of programmme supply from BSkyB. "We are very disappointed by this," a spokesman for Nynex CableComms said.

The split in the cable industry has worsened in recent months, following the signing of the long-term deals in May and the collapse of two pay- per-view, cable-exclusive programming ventures.

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