British pay-TV group BSkyB must make its premium channels showing sports available to its rivals for a set, lower fee, after a ruling marking one of the greatest shake ups of the sector.
Regulator Ofcom said it would cap the price 23 per cent below the current rate, following a three-year review prompted by complaints from rivals Virgin Media, BT, Top Up TV and the now-closed Setanta that BSkyB sought to suppress competition.
BSkyB, which has Rupert Murdoch's News Corp as its largest shareholder and James Murdoch as its chairman, said it would appeal, but it is not clear whether that would prevent the changes from being introduced while the legal case is heard.
BSkyB already sells its channels to Virgin Media customers but the cable operator says the rates are so high it is unable to make a profit from the agreement. BT has already indicated it will offer sports channels at a lower rate to customers.
Ofcom said BSkyB must cap the wholesale rates it charges rivals for its Sky Sports 1 and 2 at £10.63 per subscriber per month, a 23.4 per cent reduction to its previous agreements.
In a more positive ruling for the satellite group, it said it could also launch a paid-for TV service on the digital terrestrial platform known as Freeview, which would allow it to target customers who do not have a satellite dish.
Analysts believe the cut to BSkyB's wholesale price was expected and mostly priced into the shares, although UBS on Monday downgraded the stock to Neutral from Buy ahead of the ruling.
"Stocks often underperform ahead of regulatory catalysts, and then rally once there is visibility," UBS said.
"However, BSkyB has rallied on take-over hopes (from News Corp) and it may be some time before we know what competitors intend to do and whether BSkyB is successful in any moves to get an injunction or a "stay" against any cuts."
Sky is the largest operator in the pay-TV market, with 9.7 million customers.
"Ofcom has concluded that Sky has market power in the wholesale provision of premium channels," the regulator said. "Ofcom has also concluded that Sky exploits this market power by restricting the distribution of its premium channels to rival pay TV providers.
"This prevents fair and effective competition, reduces consumer choice and holds back innovation and investment by Sky's rivals."
Reuters