Bringing an end to a Foxtel-Austar drama

The protracted ACCC approval of Foxtel and Austar's merger is almost here, and given the competitive environment and undertakings proffered by the pay TV groups it is bizarre it has taken so long.

Finally, after nearly 10 months of negotiations, it appears the $2 billion merger of pay television services Foxtel and Austar appears likely to get through the extraordinarily protracted Australian Competition and Consumer Commission approval process. Given the nature of the concessions the pay TV groups have offered, the time the process has taken is even more remarkable.

It was always bizarre that the proposal to merge two pay TV near-monopolies that don’t compete and have no meaningful pay TV competitors – but which do compete with the multi-channelling free-to-air networks, fledgling IPTV services, DVD download services and even YouTube, should have experienced such intense and prolonged scrutiny. The ACCC’s initial concern that the merger could lead in a lessening of competition in the supply of pay TV services bordered on the oxymoronic.

Today’s ACCC statement today, announcing that it would consult with the market on undertakings proffered by Foxtel, honed in on the one issue that was obviously sensitive from the moment the deal was announced – the implications of the merger for fixed broadband and fixed voice telephony products and the potential for the merged entity to give Telstra, which owns half of Foxtel, greater market power within the telecommunications rather than pay TV sector.

Telstra is, of course, extending its use of bundling products to hold and even grow its existing customer base as it prepares for a post-national broadband network environment. Telstra finally locked in definitive agreements with NBN Co and the federal government today, securing the $11 billion of post-tax net present value that it will receive from them over the next several decades.

The ACCC has attempted to avert that threat of Telstra exploiting its shareholding in an enlarged Foxtel – and the regional customer base that Austar brings to the merger – by negotiating a string of mainly content-related undertakings with Foxtel.

Essentially Foxtel has undertaken not to sign exclusive deals on the IPTV rights to a range of content so that IPTV players face a lower barrier to entry to the sector, unless another party is seeking exclusivity.

Given that the channels concerned – channels like Sky News, ESPN, Disney Channel and the like – aren’t core subscription-driving content, and that Foxtel doesn’t have to make its critical Fox Sports channels available to third parties – the concessions aren’t particularly painful for Foxtel. Relinquishing exclusivity should also mean that Foxtel pays lower prices for those channels.

It has also agreed to give up exclusivity over video-on-demand movie rights, but movies aren’t the subscriptions drivers they once were, and has agreed to provide signal access to facilitate IPTV delivery.

While the implications for competition in the telecommunications markets were always worthy of significant exploration, the nature of the undertakings tends to highlight the length of time it has taken to get to this point in a major transaction. If Foxtel had been listed, and Austar not controlled by US billionaire John Malone, the deal might well have fallen over long before now simply because of the delay and uncertainty.

As it happens, it is now scheduled to rush to a conclusion. The market soundings have a deadline of 20 March, the ACCC has indicated it will make a final determination by 29 March and Austar shareholders will meet to vote on the merger on March 30.

The result will be not just considerable synergies and the creation of a much larger media business but one better prepared to compete with the free-to-air networks’ multi-channel offerings – and the IPTV sector that will inevitably expand as the NBN rolls out.