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Update Ofcom pay TV remedy "defies belief" - 28-June-2009, 02:50

Sky: Ofcom pay TV remedy "defies belief"

By Andrew Laughlin

Sky chief executive Jeremy Darroch has said that Ofcom's approach to the reform of wholesale pricing in its latest pay TV industry consultation "defies belief".

Released today, the watchdog's new report into pay TV has particularly focused on Sky's dominant position in the market.
Among the recommendations, Ofcom has proposed a wholesale must-offer model to free up distribution of the satellite firm's premium sports and movies channels to rival operators under a regulated pricing structure.

The regulator said in a statement: "We do not believe that this proposed remedy would have a disproportionate impact on Sky, since we consider the proposed prices are above the level required to allow Sky a reasonable return on its content costs.

"We believe that Sky's wholesale revenues would increase under the proposed remedy, due to its channels becoming more widely available."
However, Darroch has responded: "Sky invests and takes risks to create television channels of the highest quality. We spend over 1 billion a year so viewers can enjoy the movies and sports coverage they expect. In doing so, we have increased choice for consumers, raised standards across the industry and provided much-needed support for UK sport.

"We want our premium channels to be widely available on other platforms. But we deserve a fair return on the investments which create so much value for other distributors and their customers. Forcing Sky to sell its channels for less than their true value is a subsidy for companies that have shown no appetite for investment in programmes.

"BT and Virgin Media do not deserve to be handed a reward at Sky's expense for their repeated failure to invest. It defies belief that Ofcom expects Sky to lower its wholesale prices to compensate for the higher costs of less efficient platforms.

"Ofcom is proposing an unprecedented level of interference in commercial markets. Good regulation does not involve micro-management. Nor does it mean tinkering to re-shape an industry so that it matches a preconceived ideal or a spreadsheet in a regulator's office. We reject Ofcom's assumption that it knows better than us how to create value for our business.

"This country needs more companies which innovate for consumers and invest for the long term. Consumers will not benefit if regulators are allowed to intervene to limit the legitimate rewards and opportunities available to successful companies. Punishing success has a chilling effect on incentives for investment and undermines the attractiveness of the UK as a place to do business."

The satellite television provider now has until September 18 to formally respond to the consultation.

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