Consultation document issued by the Director General of Telecommunications

April 2000

Contents

Chapter 1     Introduction

Chapter 2     Statement of reasons

Chapter 3     Consultation

Annex 1        Draft decision

Relevant sources

Chapter 1

Introduction

1.1 On 12 November 1999, the Director General of Telecommunications (‘the Director’) issued a notice (‘the Notice’) under the terms of the Class Licence for the running of telecommunications systems for provision of Access Control Services, issued on 31 August 1999 (‘the Licence’).

1.2 The Notice stated that Sky Subscribers Services Limited (‘SSSL’) was in a dominant position in the relevant market for Access Control Services and provided reasons for this finding. The Notice was issued to SSSL (‘the Licensee’) and to interested parties.

1.3 A number of representations were subsequently received, and once these representations were published, a number of observations on the representations were also received. After carefully considering the representations and the observations, the Director has now published a draft decision and statement of reasons for that decision in accordance with the Licence. This statement and the draft decision in Annex I constitute a statement of reasons and draft decision under the terms of Schedule 1, Part 1, paragraph 6(f) of the Licence.

Chapter 2

Statement of reasons

2.1 Having considered the representations and the observations to the Notice, the Director believes that his finding in the Notice that SSSL is in a dominant position within the relevant market for Access Control Services continues to hold. The Notice stated that "the present determination is concerned with the provision of Access Control Services" and went on to state that in this case they were "technical services that enable only authorised digital interactive TV services to be accessed by end users." The description of Access Control Services specified under the terms of Condition 9 of the Licence in the decision is therefore "Access Control Services for digital interactive TV services".

2.2 The Director believes SSSL is currently supplying the following types of Access Control Services over the digital satellite platform, all of which are defined in the Licence:

• Message Processing Services (in particular, in order to allow digital signatures to be attached to applications);

• Authentication Services (in particular, in order to allow specific interactive services to be accessed from a specific receiver);

• Access Device Management Services (in particular, a service to prevent an application which does not have an appropriate digital signature from running on the consumer’s receiver);

• Selection Services (in particular, the ability to access interactive services via an Electronic Programme Guide);

• Subscriber Management Services (in particular, the preparation of smart cards so that the consumer is able to access interactive services).

2.3 In his draft decision, the Director, under the terms of the Licence, determines that SSSL should be a Regulated Supplier in respect of these Access Control Services, to the extent it supplies them over the digital satellite platform.

2.4 In its representation, the Licensee stated that the definition of ‘digital interactive TV services’ referred to in the Notice only referred to packages of interactive services and not stand-alone interactive services.

2.5 The Director believes that the definition of digital interactive TV services is wider than the one claimed by the Licensee. Notably, the decision of the European Commission (‘the BiB decision’) referred to in the Notice – Decision of 15 September 1999 relating to a proceeding under Article 81 of the EC Treaty [Case IV/36.539, British Interactive Broadcasting/Open] (1999/781/EC) – makes reference to providers of digital interactive television services which are not ‘packages’ of interactive services (see recital 168 of the BiB decision). The Director also believes that if the BiB decision was as restrictive in its definition of digital interactive TV services as the Licensee claims than this would have perverse consequences. Not least, it could mean that the same consumer offering provided in different forms (ie packages of interactive services and stand-alone services) would be regarded as being in separate markets.

2.6 In any case, the Director believes that the relevant market for Access Control Services includes those Access Control Services offered to all forms of interactive services designed for use with digital television services. That is, the Access Control Services offered to packages of interactive services fall within the same product market as Access Control Services which are offered to stand-alone interactive services, chiefly because of the possibility for demand and supply side substitution. The Director believes SSSL to be dominant within this market for the reasons set out in the Notice.

2.7 Certain other respondents argued that "in order to act, Oftel must show that any market failure must persist beyond the short-term." The Director does not share this view. In this context, it should be noted that the provisions in the Access Control Class Licence are an ex-ante form of regulation designed to reduce the potential for anti-competitive behaviour where a provider of Access Control Services is regarded as being in a dominant position or having Market Influence in the relevant market.

2.8 Another respondent argued that "Oftel have seriously underestimated the number of subscribers that will be capable of receiving digital interactive services provided using other digital platforms." The number of subscribers to digital interactive TV services through platforms other than the digital satellite platform is at present limited. Although the range and reach of digital interactive TV services available on other platforms is likely to increase in the coming months, the interactive services for which SSSL provides Access Control Services are likely to have the widest reach of numbers of end-users.

2.9 The Director believes that SSSL will retain a dominant position in the market for Access Control Services for digital interactive TV services for the foreseeable future. In any case, the Director proposes to conduct a market segment review of the market for Access Control Services in the first half of 2001. This proposal is outlined in the Proposals for implementing Oftel’s strategy: Draft Management Plan for 2000/01, February 2000.

2.10 Another response also argued that "Oftel appears to have taken a highly constrained view of the relevant intermediate market." The Director has used the market definition employed by the European Commission in the BiB decision. That is "the market for digital interactive television services". Under the terms of the Licence, the Director has an obligation to ‘have regard to any relevant decision or statement of the European Commission.’ The European Commission’s decision regarding the definition of digital interactive TV services is relatively recent and could hardly be more relevant.

2.11 Other respondents agreed with the Director’s view that SSSL is in a dominant position in the relevant market for Access Control Services. One respondent added "we see no likelihood of it losing that dominance in the foreseeable future."

2.12 Certain respondents also agreed with the view that there is a separate economic market for digital interactive TV services. There were also calls for Oftel to define platform-specific markets for Access Control Services. As one respondent put it "this is because the costs of re-authoring interactive applications for different platforms is approximately equal to the original authoring cost. While not insurmountable for larger service providers, this could provide sufficiently high switching costs for smaller service providers to prevent them providing services on more than one platform."

2.13 The Director sees some merit in this argument. Nevertheless, he believes it is not appropriate to take a final view on the question of platform-specific markets at the moment, since interactive services on platforms other than the digital satellite platform are not widely available.

2.14 The Director believes that although SSSL is in a dominant position in the relevant market, this position may change in the future. For this reason, the Director has announced his intention to conduct a review of the market for Access Control Services in the first half of 2001. This intention is stated in the Proposals for implementing Oftel’s strategy: Draft Management Plan for 2000/2001, issued in February 2000.. This market segment review will consider whether ex-ante regulatory measures to prevent anti-competitive behaviour in the market for Access Control Services continue to be necessary and if so, which organisations they should apply to. If necessary, the Director will also consider whether the market definition he has employed in the course of this determination continues to be appropriate.

Chapter 3

Consultation

The Licensee and interested parties now have a period of 14 days within which to comment on the draft decision and statement of reasons. This period of the consultation will thus conclude at midday on Wednesday 19 April 2000.

Responses should be sent to:

Anil Patel
SSSL as a Regulated Supplier (consultation on draft decision)
Oftel
50 Ludgate Hill
London EC4M 7JJ

Fax: 020 7634 8893.

Comments on this document can also be sent by using the following e-mail address: anil.patel@oftel.gov.uk

Written comments will be made publicly available in Oftel’s Research and Intelligence Unit except where respondents indicate that their responses, or parts of it, are confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly identified as containing confidential material. In the interests of transparency, respondents are requested to avoid confidentiality markings wherever possible. Appointments to view written comments in Oftel’s Research and Intelligence Unit, which must be made in advance, can be arranged by ringing: 020 7634 8761
(fax: 020 7634 8946).

Internet Access

Oftel would like to set up a link between this Consultative Document and any responses placed on respondents own Internet pages. Please contact Lauren Ryner at Oftel on 020 7634 8753 or by e-mail at web.oftel@gtnet.gov.uk to arrange this. Confidential responses should not be sent via the Internet.

Oftel has a free e-mail based mailing list to help people stay informed about the work that Oftel is doing. Each time an Oftel document is published and placed on Oftel’s web site subscribers to the list receive an e-mail informing them about the document. To register visit the What’s New page on the Oftel web site.

Alternative Formats

Copies of the full Consultative Document are available on disk. The Summary is available in large print, braille, and tape formats.

Please contact the Oftel Research and Intelligence Unit on 020 7634 8761, or by e-mail or call textphone 020 7634 8769 for more information.

Annex 1

DRAFT DECISION AS TO THE STATUS OF SKY SUBSCRIBERS SERVICES LIMITED AS A REGULATED SUPPLIER IN THE MARKET FOR ACCESS CONTROL SERVICES FOR DIGITAL INTERACTIVE TV SERVICES.

Whereas:

1. On 31^st August 1999, the Secretary of State granted a licence under section 7 of the Telecommunications Act 1984 (‘the Act’) to all persons defined in paragraph 2 of that licence for the running of the telecommunications systems specified in Annex A to that licence (‘the Applicable Systems’) and, subject to certain conditions, authorised those licensees to do all or any of such acts specified in Schedule 3 of that licence. The said licence, including any future amendments, is hereinafter referred to as the Licence;

2. Sky Subscribers Services Ltd. belongs to the class of persons defined in paragraph 2 of the Licence. Sky Subscribers Services Ltd. is hereinafter referred to as the Licensee;

3. Part A of Schedule 1 of the Licence contains certain requirements and obligations which the Director General of Telecommunications (‘the Director’) may impose where the Director has determined the Licensee to be a Regulated Supplier in accordance with the provisions of Condition 9 of Part A of Schedule 1 of the Licence;

4. Condition 9.5 of Part A of Schedule 1 provides that the Director may determine the Licensee to be a Regulated Supplier in a dominant position in relation to any particular market for the supply of Access Control Services where:

• the Licensee supplies or intends to supply Access Control Services to another person in respect of Relevant Other Telecommunication Services; and

• a Third Party supplies or intends to supply to the public a Relevant Other Telecommunication Service in respect of which the use of Access Control Services is necessary; and

• the Third Party has made a reasonable request for the provision to it by the Licensee of Access Control Services; and

• the Licensee is in a position of economic strength which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately consumers.

5. On 12 November 1999, the Director served a notice upon the Licensee and interested parties in accordance with paragraph 6 of Part 1 of Schedule 1 of the Licence specifying :

• the Access Control Services which the Director considers are being supplied;

• the Relevant Other Telecommunications Service (as defined in the Licence) in respect of which such Access Control Services are or may be supplied;

• how the requirements of paragraph 9.2(a) to 9.2(c) of Part 1 of Schedule A are or may be satisfied;

• the factors on which the Director has relied in determining the Licensee to be in a position of dominance.

Now the Director determines as follows:

6. the relevant market, for the purposes of this determination, is the market for Access Control Services for digital interactive TV services, that is to say the market by means of which the supply to end-users of interactive services designed for use with digital TV receivers (whether or not those interactive services are stand-alone or part of a package of services) is controlled;

7. the Licensee is in a dominant position in the relevant market. The Director therefore determines that the Licensee should be a Regulated Supplier in the supply of Access Control Services for digital interactive TV services; this decision will apply to the extent that the Licensee supplies Access Control Services over the digital satellite platform.

8. pursuant to Condition 9.8 of Part A of Schedule 1 of the Licence, Conditions 10 to 15 of Part A of Schedule 1 of the Licence come into immediate effect.

A person authorised in that behalf under Section 8 of Schedule 1 of the Telecommunications Act 1984

Relevant sources

DTI, Class Licence for the running of telecommunication systems for the provision of Access Control Services, August 1999

European Commission, Decision of 15 September 1999 relating to a proceeding under Article 81 of the EC Treaty, (1999/781/EC)

Oftel, Proposals for implementing Oftel’s strategy: Draft Management Plan for 2000/01, February 2000.

Oftel, Oftel strategy statement: Achieving the best deal for telecoms consumers, January 2000

Oftel, SSSL as a regulated supplier, November 1999