Sky cleared of abusing its power in pay-TV market

Rupert Murdoch's BSkyB was yesterday cleared of abusing its dominant position in the pay-television market, with the Office of Fair Trading overturning its own earlier finding.

The OFT's U-turn shocked the media industry and led to claims that, once more, competition regulators have been unable to pin anything on Mr Murdoch's empire. In 1999 the OFT cleared his UK newspapers, which include The Times and The Sun, of anti-competitive behaviour.

The latest OFT investigation, running since 1999, was into the wholesale prices Sky charges other pay-TV operators.

The case centres on the claim ­ put forward by the cable companies NTL and Telewest and the failed ITV Digital ­ that they are charged so much by Sky for its content, such as its premium sports and films channels, that it is not possible to make money retailing these stations to their residential customers. Sky wholesales its content to others as well as providing it to its 6.3 million direct residential customers.

In December last year, the OFT said it proposed to find that Sky had infringed competition law on three counts. The watchdog stated that, as well as in wholesale pricing, it thought that Sky had broken the law on two counts in relation to the discounts it gives to distributors in order to shut out competing premium-content providers.

Sky was then invited to submit more evidence and the satellite operator's lobbying machinery swung fully into action, providing 800 pages of written evidence to convince the OFT that none of these findings was valid. It worked. The OFT yesterday stuck to its position that Sky had a dominant market share but it now concluded there was not enough evidence to say it had abused that position ­ although, it said, the case was "borderline".

Barclay Knapp, NTL's chief executive, said: "The ruling by the OFT, which took nearly three years to conclude, serves to highlight the urgent need for a converged regulator in the form of Ofcom [the new media regulator], capable of delivering well thought-out regulation at broadband, not dial-up, speed."

Sky shares surged 5 per cent to 658p. Wholesale revenues at Sky are worth some £220m a year. If found guilty, Sky could have faced fines amounting to hundreds of millions of pounds. A "guilty" ruling would also have added weight to competitors' calls for the vertically integrated Sky to be broken up.

Kingsley Wilson, at Investec Securities, said: "The complete exoneration of BSkyB on all charges is extremely satisfying for BSkyB's chief executive Tony Ball, who has always robustly defended the company's business practices."

The OFT used an economic model based on Sky's own division that distributes content to its direct customers. This showed a loss, indicating that even Sky could not make money on the prices it was charging for content. However, additional data provided by Sky after the initial OFT finding showed the unit had moved into profit.