Foxtel and Austar's sporting chance

The ridiculously protracted process for gaining competition policy approval for the Foxtel merger with Austar is finally over, just short of a year after the merger was announced. While the Australian Competition and Consumer Commission produced an impressive list of Foxtel concessions to gain approval for the deal, in reality the proposal has got through the process relatively unscathed.

The concessions relate to Foxtel undertakings not to acquire exclusive IPTV, video-on-demand and mobile programming rights. Movies and television programming, however, aren't the drivers of subscription television take-up.

As the ACCC noted, however, the undertakings don't prevent Foxtel from acquiring exclusive rights to individual sports. Sport does drive subscriptions, hence Foxtel's determination to acquire the AFL rights last year and its continuing campaign against the anti-siphoning list. Foxtel won't have to make its Fox Sports channels available to third parties.

The ACCC's view of the competition landscape in which the merger is occurring was too narrow. Its focus was on the market for subscription television and the emergence of IPTV services where the real competition to Foxtel and Austar – and the reason pay TV penetration has stalled – is from free-to-air television and the proliferation of channels that has occurred now that the networks are allowed to multi-channel.

While there will be some significant synergies as a result of the merger, bringing Austar's regional audience next to Foxtel's metropolitan subscriber base doesn't fundamentally alter the competitive landscape in the television industry.

The more legitimate area of ACCC concern was the enhanced capacity the merger would give Foxtel's major shareholder, Telstra, to bundle its telecommunications products with pay TV in Austar's regional markets and offer a ‘triple play' service of fixed line voice, broadband and pay TV services.

Telstra was quick to say today that the clearing of the merger would enable it to expand its T-box IPTV offering into Austar areas over time. While the reduction in exclusive programming might make it easier for Telstra's competitors to get access to programming, Telstra obviously see a significant competitive opportunity from the creation of a national pay TV business.

As the ACCC's Rod Simms said today, however, the undertakings were not intended to resolve competition or structural issues that might already exist and which are unrelated to the merger. Telstra is already dominant in regional Australia and Foxtel and Austar's ownership of sporting rights would be a reality regardless of the merger.

The commission did say that it would continue to consider whether exclusive content arrangements have the purpose or effect of substantially lessening competition or involve a misuse of market power – but it is relevant that the federal government has been opening up sports previously protected for the free-to-air networks to competition from the pay TV operators.

In a post national broadband network environment, too, the ability for new entrants – or the sports themselves – to distribute sports and other programming will be vastly enhanced and provide extra competitive tension at the very least to the existing competition between pay TV and the networks for programming.