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Press releases 2002 -

OFT concludes BSkyB investigation

Breach of Competition Act not found

PN 89/02    17 December 2002

British Sky Broadcasting (BSkyB) has a dominant market position but has not been found in breach of competition law, the OFT has concluded.

The OFT has today written to BSkyB setting out the findings of its investigation in a 157-page report. It concludes that BSkyB is dominant in markets for the wholesale supply of pay channels with certain premium sports and film content.

The OFT has published a short paper that gives an outline of the investigation and the reasons for the conclusions reached - BSkyB: The outcome of the OFT's Competition Act Investigation (pdf file 66 kb). The full decision will be published in due course, with confidential material removed.

Following complaints from rival pay TV distributors, the OFT investigated whether BSkyB's conduct in these markets amounted to an abuse of a dominant position, in breach of the Chapter II prohibition of the Competition Act 1998.

The core question was whether BSkyB had exerted an anti-competitive 'margin squeeze' against its pay TV rivals by setting its wholesale prices for premium channels at a level that would make other distributors with the same efficiency as BSkyB run at a loss (see note 2).

The investigation showed that the answer was around the borderline: for the period examined the margin squeeze test showed a temporary and relatively small loss followed by a return to profit. This borderline finding does not provide sufficient grounds to conclude that competition law has been broken.

The OFT also examined allegations:

  • that BSkyB had practised 'mixed bundling' (see note 2) anti-competitively by offering discounts on additional premium channels taken by subscribers, restricting the entry of new channels into the market, and
  • that the discounts that BSkyB offered to distributors of its premium channels on one version of its ratecard distorted competition by restricting entry into channel supply (see note 2).

In relation to mixed bundling there are again insufficient grounds for a finding that BSkyB has broken competition law. The OFT finds the ratecard discounts not to be anti-competitive.

John Vickers, Director General of Fair Trading, said:

'Allegations that BSkyB unlawfully distorted competition in pay TV called for thorough investigation. We have concluded that BSkyB is dominant in the supply of premium channels. On the key issue of the alleged margin squeeze against rivals we found BSkyB to be around the borderline of anti-competitive behaviour. Overall there are not sufficient grounds to conclude that BSkyB has broken competition law.'

NOTES

1. The investigation covered BSkyB's conduct between the commencement of the Competition Act in March 2000 and the end of 2001.

The OFT launched a Competition Act investigation into BSkyB on 5 December 2000. On 17 December 2001, the OFT issued a Rule 14 Notice proposing to make a decision that BSkyB had behaved anti-competitively, infringing UK competition law. As required by law, BSkyB was given the opportunity to set out its case both orally and in writing, and it did so. Its representations were extensive and carefully considered by the OFT. In the light of further evidence provided since the Rule 14 Notice, the OFT has reached the conclusions set out in the press notice above.

2. Margin squeeze exists when a dominant vertically integrated company wholesales a product to distributors at a price that allows an insufficient margin for them to make a profit, even if they are as efficient in distribution as the vertically integrated company's own distribution business.

Mixed bundling refers to the situation where two or more products are offered together at a price less than the sum of the individual product prices – i.e. there are discounts for buyers of additional products which are not available to buyers of the same products singly. This might disadvantage competitors who are unable to provide a full range offering.

Discounts - the complaints said that the discounts enhanced distributors' incentive to sell BSkyB premium channels by offering progressive discounts on sales of BSkyB channels to final consumers.

3. Powers under the Competition Act 1998

The Act gives the OFT powers to investigate suspected infringements of the Act's prohibitions:

  • Chapter I prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which have the object or effect of preventing, restricting or distorting competition in the UK (or any part of it) and which may affect trade within the UK (or any part of it)
  • Chapter II prohibits conduct by one or more undertakings which amounts to the abuse of a dominant position in a market which may affect trade within the UK (or any part of it).

In this press release the functions of the Director General of Fair Trading (DGFT) under the Act are for simplicity described as the functions of 'the OFT'. The Enterprise Act 2002 will replace the office of the DGFT with the OFT, to which will be transferred the DGFT's functions. The relevant provisions of the Enterprise Act are not yet in force.




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