Judgment

Judgment of the Tribunal on an appeal by British Telecommunications PLC (“BT”) challenging a decision by the Office of Communications (“OFCOM”) to remove the wholesale must-offer obligation (“WMO”) that it had imposed on Sky in 2010. That obligation required Sky to wholesale certain sports channels to other pay TV retailers with prices and terms set by OFCOM.

The challenged decision is contained in a statement published on 19 November 2015 entitled “Review of the pay TV wholesale must-offer obligation” (the “2015 Statement”). In that Statement, OFCOM concluded that Sky continued to hold a strong market position as supplier of key sports channels and as a pay TV retailer. However, in light of the distribution arrangements for Sky’s key sports content, OFCOM concluded that it no longer had concerns regarding non-supply by Sky of key content, or supply on terms that did not allow fair and effective competition. It therefore considered that the WMO was no longer appropriate and should be withdrawn. It would, however, monitor the market closely and intervene if it saw evidence of practices by Sky that might harm competition (referred to as the ‘wait and see’ approach).

For the reasons given in the Judgment, the Tribunal has decided that BT’s appeal fails on all five grounds.

In its first ground, BT alleged that OFCOM had erred in law in the application of section 316(2) of the Communications Act 2003 (“the Act”) and acted in breach of its duties under section 3 of that legislation by adopting a ‘wait and see’ approach based on an assessment of Sky’s current supply agreements; BT also alleged that OFCOM’s approach, focusing as it did on current supply arrangements, was insufficiently forward looking and that OFCOM had not conducted an appropriate proportionality assessment.

The Tribunal held that even where OFCOM has identified a risk of conduct prejudicial to fair and effective competition, it retains a broad discretion under section 316(2) to determine whether or not licence conditions are appropriate to address that risk, as well as discretion as to what the precise form of those conditions should be. Furthermore, the 2015 Statement, read as a whole, shows both that OFCOM recognised that it should conduct a forward looking assessment and that it did in fact carry out such an assessment. The Tribunal found that a proportionality assessment along the lines of Fedesa is not relevant in the context where regulation is being withdrawn and that OFCOM had carried out an appropriate balancing exercise.

In grounds 2, 3 and 4, BT contended that OFCOM had carried out an inadequate market analysis and that, on the basis of the analysis that it had done, it could not properly have come to the conclusion that it was appropriate to remove the WMO. BT contended: that OFCOM should have carried out an orthodox competition analysis, or the type of detailed analysis that it had carried out in 2010; that it failed to take sufficient account of the WMO and its effect on Sky’s supply arrangements, on which OFCOM had in any event placed undue reliance; and (in ground 3) that it wrongly focused on key content rather than on sports channels.

The Tribunal found that OFCOM had conducted a sufficient analysis of competitive conditions and that it had not placed undue reliance on current supply arrangements or placed insufficient weight on the WMO.

In ground 4, BT also contended that OFCOM had failed to examine properly whether Sky’s wholesale pricing was too high to allow retailers to compete effectively (as it had done in 2010). The Tribunal held that OFCOM’s overall conclusion on pricing, relying on commercial agreements in the market going beyond what was required by the WMO, was sound. BT also complained that the consultation process was flawed because it had not specifically highlighted pricing issues and that OFCOM had not given due consideration to a pricing analysis that BT had submitted. The Tribunal observed that BT had been able to submit the evidence it wished to submit and nothing of substance turned on the fact that this had not been done in response to a formal consultation. The Tribunal found that BT’s pricing analysis was designed to answer a question that was pertinent in 2010, but no longer relevant in 2015.

Ground 5 was BT’s contention that OFCOM had erred by not condemning as harmful to fair and effective competition Sky’s practice of insisting on a grant-back condition (also referred to as a requirement for reciprocal supply) and by adopting a ‘wait and see’ approach. BT argued that harm had already crystallised, whereas OFCOM took the view that negotiations between BT and Sky were ongoing and that the requirement for reciprocity might lead to harm if the negotiations resulted in either non-supply or supply on terms harmful to competition. The Tribunal did not agree with BT that harm had crystallised. Neither was the Tribunal persuaded that OFCOM was wrong in according little weight to BT’s economic modelling of the grant back condition, or that it was wrong to decide to monitor the market closely and intervene when it considered it necessary.