Joint Committee on The Draft Communications Bill Appendices to the Minutes of Evidence


Memorandum submitted by Tim Lord, Former Head of Regulatory Affairs, ITV Digital

  I worked for ITV Digital from May 2000 until April 2002 and was responsible for ITV Digital's evidence and submissions to the Office of Fair Trading, the Independent Television Commission, the Office of Telecommunications and the European Commission. I am a lawyer who specialises in telecommunications and broadcasting regulation.

  ITV Digital offered pay television services using digital terrestrial transmission from November 1998 to April 2002 when it ceased trading. Prior to closing down it had around 1.2 million customers.

  ITV Digital was concerned with a number of business practices pursued by BSkyB, its main competitor and supplier, which appeared to be inconsistent with the Competition Act and other specific legal rules. Specifically:

    —  BSkyB's wholesale pricing of premium channels to ITV Digital and the cable companies which we believed to be excessive and discriminatory

    —  foreclosure of the commercial market (pubs and clubs) by BSkyB's excessive wholesale pricing for these premises

    —  BSkyB's retail pricing and provision of a free set digital top box soon after ITV Digital's launch

    —  BSkyB's holdback arrangements with certain key basic channels such as the Discovery Channel, Paramount and Nickelodoen which prevented these channels being offered by ITV Digital at launch

    —  BSkyB's effective refusal to carry the ITV Sport channel within its package of channels and Oftel's failure to intervene under its powers under the Conditional Access class licence to allow the ITV Sport channel to be offered to BSkyB subscribers

    —  BSkyB's retail bundling of channels which had the effect of further foreclosing entry by the ITV Sport channel

    —  BSkyB's refusal to carry adverts for ITV Sport on the Sky Sports channels

  I believe that the main (if not the only) reason for the failure of ITV Digital was that these questionable business practices were pursued by BSkyB and that the various competition authorities failed to respond either effectively or at all when these issues were put to them. For example, the OFT have been investigating the first of these issues since March 2000 but has yet to reach a final conclusion more than two years later. It did reach a preliminary conclusion in December 2001 to the effect that BSkyB had broken the law. Any final decision will now come too late.

  The collapse of ITV Digital in April this year has cost its shareholders many 100s of millions of pounds, caused 1000s of people to lose their jobs, denied over a million customers service and fatally damaged the prospect of universally available multi-channel television in the UK. The loss to the UK consumer runs in to billions and the whole episode from the award of DTT licences to the eventual closure of ITV an industrial policy disaster in the communications sector of considerable significance.

  Important lessons can be learned from this disaster in putting together Ofcom, creating the new regulatory regime and establishing new media ownership rules.

  I would invite the committee to consider:

    —  the US has a specific legal regime which imposes special rules on vertically integrated video distributors and their freedom to acquire exclusive rights from content providers (see attached note) this is in addition to the extensive US antitrust rules. I believe the committee should consider recommending the adoption of a similar set of rules in the UK as part of the Communications Act. Such action would allow effective platform competition while still allowing content providers an appropriate return on their investment;

    —  regulators such as the OFT are insufficiently resourced to deal with a well funded and powerful monopolist such as BSkyB which is able to manipulate procedural rules in order to delay an investigation in to its behaviour—accordingly the Committee might wish to consider a number of changes to the procedural rules to allow greater freedom of action for regulatory bodies when dealing with monopolist with "super dominance" ie a market share over 90 per cent;

    —  News Corporation's control of four national newspapers together with its interests in the dominant pay television operator leads to the possibility that it can use its control over the press to negotiate with Government more favourable regulatory treatment of its television interests—especially when the legal and regulatory environment is subject to change. News Corp's influence also undermines confidence in the transparency and fairness of independent regulator's decisions. One solution would be to restrict cross media ownership from national newspapers to other business interests in the UK such as television.

  I believe my experience over the last two years has given me a unique insight in to the effectiveness or otherwise of the main regulatory bodies responsible for telecommunications and broadcasting regulation and general competition regulation. I would be very happy to provide further written or oral evidence to the committee for their consideration and in support of their deliberations on the draft bill.

May 2002

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