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17 February 2016

Here we go again: The Pay TV wholesale must-offer (WMO) obligation – BT appeal to the CAT

In 2010, Ofcom concluded a review of the pay TV market. The market is increasingly important as 58% of UK homes now subscribe to a pay TV service. The review identified concerns around competition in the market, some of which stemmed from Sky's practices in its supply of premium paid sports television content. The review prompted Ofcom to impose a wholesale must-offer (WMO) obligation on Sky under section 316 of the Communications Act 2003 (the Act) to address these practices. The WMO obligation required Sky to offer to wholesale its Sky Sports 1 and 2 channels to other pay TV retailers with the wholesale prices and terms to be set by Ofcom. In doing so, Ofcom intended to benefit consumers by providing greater competition in the Pay TV market, by way of a greater range of choice of pay TV provider and content and ultimately creating greater competition on price.

Ofcom's 2010 decision to impose the WMO obligation on Sky was appealed to the Competition Appeal Tribunal (CAT). Under section 3(3) of the Act, Ofcom is under a duty to have regard to the need to act in a manner which is proportionate and targeted only at cases in which action is needed. In 2010, the CAT put in place interim arrangements which maintained the wholesale must-offer regulation in place in respect of BT (on its BT Vision service), Virgin Media, Top-Up TV and Real Digital. In November 2014, the CAT extended the interim arrangements to BT YouView.

In June 2013, Ofcom, as the independent regulator and competition body for UK communications opened an investigation into a complaint from BT which alleged that "Sky was abusing a dominant position in the Pay TV market by making wholesale supply of Sky Sports 1 and Sky Sports 2 to BT's YouView platform conditional on BT wholesaling its BT Sport channels to Sky for retail on Sky's satellite platform". Ofcom decided to review the WMO obligation to see if it had sufficient concerns to key the restriction in place and if it should be modified or removed in Sky's case. Amongst other factors, a key issue in Ofcom's decisional practice was whether providers of channels which show major sports content, specifically identifying Premier and Champions League Football Matches, would limit distribution to competing pay TV retailers and if they were to do so whether that would prejudice competition. Its statement included the assertion that: "[it] expect[s] competition in pay TV to deliver benefits to consumers in the form of choice, innovation and lower prices." Upon conclusion of its review, Ofcom published a statement on 19 November 2015, which stated that it did not deem the regulation of providers of paid sports channels appropriate and therefore, that Sky should be freed from the WMO obligation. Ofcom made clear in its statement that "[they] already monitor the pay TV market closely and... will continue to do so".

On 21 January 2016, BT sought to challenge Ofcom's November 2015 decision and filed an appeal at the CAT. BT is bringing its current appeal on the basis that it believes that Ofcom made errors on several points which formed the basis of its decision and November statement. It claims that Ofcom did not correctly apply section 316 of the Act, nor did it exercise its discretion correctly, and was in breach of its statutory duties. BT also submits that Ofcom should not have adopted a "wait and see" approach in its decision making. BT claims that Ofcom have not properly assessed the risk to competition in the market which results from lifting the WMO restriction on Sky, particularly in the arena of paid sports services offered by such channels.

In its appeal the CAT, BT is seeking a new restriction to be imposed upon Sky by the Tribunal under the terms of the Act which would restrict Sky from engaging in limited distribution or being able to demand reciprocal supply. It also proposed that Ofcom should also be required to conduct an analysis of wholesale prices in the pay TV market, in order to determine what wholesale prices could be seen as detrimental to fair and effective competition in the market and to prevent providers from being able to set their prices at such levels.


This article was written by Sophie Langley-Evans. For more information please contact Sophie on +44 (0)20 7427 6412 or at