Chillin'Competition

Some of you may remember that I wrote a few months ago about the regulation of pay TV markets by Ofcom. Back in 2010, the regulator required Sky to supply its premium sports channels to its rivals even though there was (is) no evidence that they were (are) indispensable for downstream competition (there is in fact strong evidence suggesting the opposite), and even though intervention could have the paradoxical effect of strengthening the position of the incumbent telecommunications operator (thereby contradicting the very logic and purpose of the EU Regulatory Framework for electronic communications).

The battle between BT and Sky has made the headlines again, unfortunately for the wrong reasons. BT instigated Ofcom to start the pay TV investigation that resulted in the imposition of wholesale supply obligations on Sky. It now appears that the latter wants an inquiry into the BT’s Openreach, the division that runs the network of the incumbent operator. The ultimate aim of Sky and other major broadband providers like TalkTalk is to achieve the structural separation of Openreach, which they would like to become an independent company. This question is particularly topical against the background of the (ongoing) merger between BT and EE (the leading mobile operator in the UK).

BT and Sky cannot be blamed for using regulation as a means to obtain competitive advantages (or as a means to compensate for a competitive disadvantage). If Ofcom has created the impression that lobbying to obtain regulatory favours pays off, it is natural that Sky follows that route in an attempt to achieve a level playing field in the operation of broadband Internet services. Those of us interested in competition law (and competition tout court), however, see this trend with concern. Where companies devote their resources to achieve regulatory advantages, and not to improve their services, consumers are typically made worse off.

These developments also suggest that bad regulation (and bad intervention under competition law, may I add) is more harmful than commonly assumed. Imposing an obligation on Sky to supply its premium sports channels is problematic not only because it is entirely unjustified, but also because it distorts firms’ incentives and encourages them to compete before the regulator, not in the marketplace. Not to mention that overregulation tends to create the need for ever more regulation to remedy the distortions created by the piling up of successive interventions.