BT takes Ofcom case to extra time (back) at the Competition Appeal Tribunal

Published 03 March 2014 By: Alex Haffner

BT & Sky Logo

Since it shook up the sports rights market by acquiring two key packages of FA Premier League rights in 2012, BT has not been afraid to resort to legal process to achieve its commercial objectives.

The latest example was its decision to appeal a decision by the UK Competition Appeal Tribunal (CAT) which had overruled Ofcom's intervention in the way Sky sells its sports channels to other platform operators. Earlier this month, the Court of Appeal appeared to vindicate that approach when it upheld BT's appeal and remitted the case back to the CAT for further consideration.

 

Ofcom's pay-TV decision

The Ofcom/Sky Sports case has its origins in a 2007 decision by Ofcom to investigate the extent of Sky's market power in the supply of premium content channels. That decision was prompted by a complaint issued on behalf of Sky's main pay-TV rivals who at the time included Setanta and Top-up TV (both of whom have effectively since left the market) along with Virgin and BT. A key plank of the complaint was the inability of any of the parties but Virgin to agree terms with Sky for the wholesale of their sports channels (ie so that the other platforms could then package up and retail those channels themselves). This, the complainants said, put them at a significant competitive disadvantage given in particular the importance and attractiveness of the content made available on the relevant channels. Indeed, they argued that Sky had no intention of reaching terms on any meaningful basis since it better served its purpose not to do so.

The complainants' ambitions were certainly lofty, amongst other remedies they lobbied Ofcom for Sky to be broken up as the only means of being able properly to deal with the negative impact on competition of its overall market power. However, Ofcom's final pay-TV Statement, issued in March 2010, was no less dramatic, imposing a remedy on Sky which required it to offer its "core" sports channels (Sky Sports 1 and 2) to retailers on other broadcast platforms at a regulated wholesale price. This has become known as the Wholesale Must Offer (WMO) remedy.

There then followed an almighty legal tussle before the CAT over the summer of 2011. This pitted Sky and various sports rights holders worried at the impact of Ofcom's intervention on the value of their rights on one side against BT and Virgin on the other, both of whom argued, unsurprisingly, that Ofcom was fully justified in its approach. BT and Virgin also argued that Ofcom that, in fact, Ofcom had not gone far enough because the "remedy" did not extend to all of Sky's sports channels (ie Sky Sports 3&4 were excluded).

Eventually, after hearings lasting 3 months and then a further 12 months of internal deliberations, the CAT decided in August 2012 that, whilst it did have legal authority to impose the WMO, the key basis for Ofcom's decision was flawed. Most notably, Ofcom had misinterpreted the pattern of the commercial negotiations between Sky and other platform operators. On the CAT's analysis, the evidence showed that Sky had, contrary to Ofcom's findings, engaged constructively in each set of negotiations and was prepared to reach terms with the relevant counterparty, provided they could find a reasonable basis for doing so.

 

Court of Appeal

Because the CAT overturned Ofcom's findings on what it termed its "core concern", it did not see fit to review each of the other aspects of Sky's behaviour which would be relevant to any decision to impose the WMO.

This, in effect, formed the basis for BT's appeal. In particular, it argued that the CAT had failed to consider whether, even if it had agreed wholesale terms, Sky would have offered its sports channels to other retailers at a fair price. In fact, Ofcom's assessment was that Sky would only have been willing to deal on the basis of its own rate-card, which of itself was prejudicial to fair and effective competition.

In a judgment issued earlier this month, the Court of Appeal agreed with BT that the this point was material to its assessment of the legality of the WMO. As a consequence, the Court decided that the CAT was duty bound to re-consider the issue and the case should be remitted to it for further consideration. In so doing, it seems likely the CAT will confine itself to the issue on which the Court of Appeal found issue with its initial analysis, although it may be that the parties will seek to use the opportunity to re-open matters which were part of the original hearings in 2011.

 

The wider picture

As alluded to above, things have moved on somewhat since Ofcom reached its original decision. Were it to have started its assessment de novo today, it is debatable whether to would reach the same conclusions, not least given in particular BT's dramatic entry into the market for the acquisition of sports rights.

But the case is not just about the legality or otherwise of the WMO. Sky and BT are currently in the midst of an on going (and very public) negotiations over the rights to retail each other's sports channels on their own platforms.

The current stand-off between the parties means that Sky subscribers can only access BT sports channels by signing up directly with BT. Conversely, Sky has refused to make available Sky Sports to BT You View customers on the basis that it first has to get reciprocity of supply from BT. The latter refusal is also the subject of an on going investigation by Ofcom prompted by a formal complaint issued by BT. This is therefore a legal battle between two media giants that is being played out on many fronts and which will no doubt continue for some time yet.

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Author

Alex Haffner

Alex Haffner

Alex is a Partner in the Commercial, Sports and IP Team at Fladgate LLP, specialising in the sports, technology and media sectors.

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