Ref: 61/02
Date: 22 October 2002

Oftel has today confirmed that the existing regime for the regulation of conditional access services will be carried forward under the new European Directives.

Oftel has published a revised set of conditional access guidelines on what broadcasters can expect when purchasing conditional access services from digital platform providers.

The guidelines cover how Oftel expects conditional access prices to be derived, and how operators should approach the negotiation process to agree these charges.

Conditional access services allow broadcasters to supply their television programmes only to customers who are entitled to watch them. They can include encryption, subscriber authorisation and subscriber management services.

Oftel has also announced today that Sky Subscribers Services Limited’s (SSSL’s) charge for carrying the digital channel ITV1 on Sky’s satellite network is fair, reasonable and non-discriminatory.

This follows a thorough investigation of a complaint from ITV that SSSL’s charge was too high for carrying ITV1 on Sky’s satellite network.

Peter Waller, Oftel’s Deputy Director General, said today:

"As communications services converge and the creation of OFCOM continues to gather pace, it is important that Oftel maintains a clear and coherent regulatory approach towards access issues in the broadcasting market.

"Oftel’s approach to conditional access has worked well and there has been only one formal industry complaint in four years under this regulatory regime.

"The revised conditional access guidelines published today update existing Oftel policy and give clarity to the industry on future regulation of these aspects of the market.

"The new guidelines take into account recent changes in the broadcasting market and clarify what broadcasters can expect when negotiating terms for conditional access with digital platform providers.

"As the existing conditional access regime will be carried forward automatically, Oftel does not propose to conduct a review of the conditional access market as part of the market reviews under the new European Directives."

Commenting on the ITV complaint, Peter Waller continued:

"Oftel found no evidence to support ITV’s complaint that SSSL’s charges for access to their satellite network were unreasonable, unfair or discriminatory. Oftel has therefore rejected ITV’s complaint.

"SSSL is subject to regulation under the Conditional Access Services Class Licence and therefore has to provide conditional access services on fair, reasonable and non-discriminatory terms."

Oftel today also welcomed the recent decision from BSkyB to remove, from January, the contractual requirement for consumers who receive a free set-top box to subscribe to its digital television services.

BSkyB recoups the cost of free set top boxes through conditional access charges and their broadcasting packages, which consumers were required to buy in order to qualify for a free set top box.

As all broadcasters contribute to the subsidy through conditional access charges, Oftel had raised concerns with BSkyB that it was inappropriate for it to require customers to purchase a Sky broadcasting package in order to receive all channels, including non-Sky channels. Sky has now decided to withdraw that condition.

Notes to Editors

1. Terms of supply of conditional access: Oftel guidelines is available on Oftel’s website at www.oftel.gov.uk/publications/broadcasting/2002/cagu1002.htm. Hard copies are available to the media from Oftel’s Press Office on 020 7634 8991 and to the public from Oftel’s Research and Information Unit on 020 7634 8761.

2. Oftel originally published guidelines on conditional access and access control in February 1998 and these are available on Oftel’s website at www.oftel.gov.uk/publications/1995_98/broadcasting/ca298.htm.

3. Oftel published a statement on the pricing of conditional access, The pricing of conditional access services and related issues, in May 2002 and this is available on Oftel’s website at www.oftel.gov.uk/publications/broadcasting/2002/cast0502.htm.

4. Following agreement last year with SSSL over charges for access to Sky’s satellite network, ITV lodged a complaint with Oftel in November 2001 that the charges were too high. All providers of conditional access service must provide them on fair, reasonable and non-discriminatory basis to other broadcasters.

In particular, ITV alleged that the price that SSSL charges ITV for conditional access services is excessive, and constitutes anti-competitive price discrimination between ITV and other public service broadcasters.

In relation to whether the charge that ITV pays SSSL for conditional access services is excessive, Oftel carried out a number of sensitivity analyses in order to model different scenarios which demonstrate the effect that disallowing certain large cost elements would have on SSSL’s business. Oftel concluded that, after carrying out these sensitivity analyses, SSSL’s Internal Rate of Return still fell within a range that would be considered ‘fair and reasonable’.

In relation to ITV’s allegation that the price it pays for conditional access services constitutes discrimination between it and other public service broadcasters, Oftel found that legitimate reasons exist for the differences in price. In particular, deals with other public service broadcasters were concluded at different times, when there were significantly different prevailing market and commercial conditions.

Oftel publishes details of completed cases in its quarterly Competition Bulletin. The summary in respect of this case will appear in the next edition of the Competition Bulletin. The Competition Bulletin is available on Oftel’s website at www.oftel.gov.uk/publications/comp_bull/index.htm.

5. British Sky Broadcasting Limited (BSkyB) and Sky Subscribers Services Limited (SSSL) are two of British Sky Broadcasting Group plc’s subsidiary undertakings. SSSL provide ancillary functions supporting the satellite television broadcasting operations of the group, and BSkyB deal with the transmission of the group’s English language satellite television broadcasting services.

6. Oftel has powers to regulate the provision of access control services under the terms and conditions of the Access Control Class Licence. These are services, other than conditional access, which control the supply of other digital services to end users, for example, broadcast interactive services such as shopping and banking through a television set. Sky Subscribers Services Limited is currently the only supplier designated as a regulated supplier of access control services.