Ofcom orders Sky to cut wholesale price of Sky Sports 1 and 2

Ofcom has ordered Sky to cut the price it charges rivals for Sky Sports 1 and 2 by 23.4%.

The cut in the wholesale price means rivals such as BT and Virgin Media will now pay £10.63 for each channel, down from £13.88.

The regulator said that as most consumers currently buy packages which include Sky Sports 1 and 2, the wholesale price for this bundle has been reduced by 10.5% to £17.14.

The ruling, part of Ofcom’s investigation into the pay-TV market – launched in March 2007 following a submission from BT, Setanta, Top Up TV and Virgin Media – should lead to lower prices for consumers as BT and Virgin Media have already said they will pass on savings to their subscribers.

The price cut is effective from today, with Ofcom requiring Sky to make a ‘reference offer’, a template contract to other pay TV providers, within the next six weeks. However, the satellite broadcaster said this morning that it will take the matter to the Competition Appeal Tribunal. It is also likely to take legal action backed by the UK football and cricket governing authorities, who stand to make less money from lucrative TV rights.

Ofcom also found that “Sky is restricting the distribution of premium movies and there is ineffective exploitation of subscription video-on-demand movie rights”. However, its powers in this area are restricted so it is referring this to the Competition Commission.

Ofcom said: “Sky exploits this market power by restricting the distribution of its premium channels to rival pay TV providers. This prevents fair and effective competition, reduces consumer choice and holds back innovation and investment by Sky’s rivals.

“Today’s decisions are therefore designed to ensure fair and effective competition which should lead to greater investment, innovation and choice for consumers.”

The ruling also sees Ofcom approve Sky and Arqiva’s request for Sky’s pay-TV channels to launch on Freeview as part of the ‘Picnic’ service, with approval for this subject to Sky implementing the wholesale price cuts for Sky Sports 1 and 2.

Sky planned to launch Picnic – replacing its free-to-view channels on Freeview with paid-for channels – in 2008 but was unable to go ahead because of Ofc0m’s investigation.

Gavin Patterson, chief executive officer, BT Retail, said, however, that Ofcom has not gone far enough. “Today’s decision from Ofcom is disappointing but a step in the right direction. We will at last be able to sell two premium sports channels. We aim to offer Sky Sports1 and 2 at lower prices than those which have been available. We hope to bring them to the market in time for the new Premiership football season but that will depend on Sky now complying with Ofcom’s decision.

“However, Ofcom should have gone much further than it did. They have dropped movie channels, which should have been included.  They should have included all Sky Sports channels, not just two. The wholesale price for the two sports channels is higher than the regulator had previously suggested. Pubs and clubs should also have been offered some help as they have no option but to pay sky high prices. Ofcom has not set a regulated price for HD channels.

“Sky may appeal against this decision but Ofcom’s remedy should be implemented without delay so that customers can benefit from lower prices.”