Editorial: Sky may have gone step too far with deals

File photo / Sarah Ivey

There is unlikely to be much public sympathy for Sky Television as it comes under increasing scrutiny.

Some of its customer relations and programming practices smack more than a little of the cavalier approach of Telecom before the previous government lowered the boom on its domination of the telecommunications market.

Indeed, many heads doubtless nodded this week when it was said that Sky had enjoyed a charmed run in avoiding regulation. And, as with Telecom, it seemed possible the competitors making these claims were not just talking their own books.

This underpinned a 7 per cent tumble in Sky's share price immediately after the Commerce Commission announced it would investigate the company's content contracts with internet service providers and whether these hindered competition in the unregulated pay-TV market.

The spotlight deepened when the Telecommunications Commissioner indicated he was keeping a watch on the provision of content. This was all a far cry from the wide berth formerly accorded the pay-TV sector by competition watchdogs, government agencies and successive governments.

There was justification for this. Sky's domination of sports content, in particular, has drawn criticism from rivals, as well as viewers resentful of having to subscribe to watch big matches. There were suggestions that the country should have anti-siphoning rules - essentially a list of events that must be shown on free-to-air television - or require an "unbundling" of sports coverage to stop broadcasters using their financial muscle to negotiate exclusive contracts with leading codes.

Wisely, such entreaties went unheeded. To do so would have robbed sports bodies of their right, as independent organisations, to sell to the highest bidder, or to place their game in the broadcasting context that best served their interest.

The new issue being probed by the Commerce Commission is of an altogether different nature, however.

Its focus is a claim by Australian internet TV and movie service Quickflix that some internet service providers have been "forbidden" from making deals with it and other players because they are contractually locked into exclusive deals with Sky.

The commission will investigate such deals under the terms of sections 27 and 36 of the Commerce Act. These involve, respectively, contracts, arrangements or understandings that substantially lessen competition, and practice or conduct that takes advantage of market power.

The watchdog will examine if Sky is in breach of one or both of these as it seeks to transfer its dominance of the satellite-based pay-TV market into a new technological arena.

Sky has sought to play down concerns that this will be the harbinger of regulation that will prevent it achieving the sort of market share that it enjoys in the satellite sphere.

Chief executive John Fellett says the agreements with internet providers require only that they deliver Sky more favourable terms than those given to competitors. Doubtless, he is also heartened by the dearth of successful cases brought under the Commerce Act's "taking advantage" provision.

But if Sky has entered the sort of exclusive dealing territory that landed Fisher & Paykel in trouble two decades ago, it has clearly gone a step too far. Denying other companies the right to buy from alternative suppliers is never acceptable. Sky must be sure that it is not overplaying its hand. If it is, its shareholders may soon discover their golden run is over.