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Break Point to BT Sport in the 5th Set against Sky

First written for and published by LawInSport.Click here to view the original article.

Nicholas Goodfellow

The battle between BT and Sky in the vast market of sports broadcasting rather has the feel of a five set match between Roger Federer and Rafael Nadal in times gone by.

In the Courts it is advantage to BT, following the decision of the Court of Appeal ([2014] EWCA Civ 133) in an appeal brought by BT against a decision of the Competition Appeal Tribunal (“CAT”) (“the Appeal”) (in which Ofcom, Virgin Media and the Football Association Premier League were also parties).

The Appeal was a colossal legal battle argued by no fewer than four silks and eight junior counsel, on appeal from a hearing before CAT which lasted for 39 days and resulted in a 330 page judgment!

It will be no surprise, therefore, that the judgment of the Court of Appeal does not make for light reading either. The purpose of this article is to summarise what was in issue before the Court of Appeal, and what was decided.

Pay TV is big business. Sky had (at the material time) a right to broadcast major sporting events on “core premium sports channels” (or “CPSCs”). Other companies such as BT and Virgin Media are competitors in the Pay TV market. Sky has always been prepared to retail, for a fee, the CPSCs on these competitor’s platforms.

Ofcom regulates Pay TV broadcasting. Following detailed consultation from 2007 onwards, Ofcom issued a statement on 31 March 2010, concluding, among other things, that:

1. Sky had a “practice”which consisted of a “strong reluctance” to negotiate wholesale deals for CPSCs with retailers except where there had been a prospect of regulatory intervention had it not done so, in order to maintain two “strategic objectives”.
2. This practice was prejudicial to “fair and effective competition” in the Pay TV market.
3. Further, where Sky entered into discussions as to the wholesale pricing for CPSCs it would do so only on the basis of a price referred to as the “rate-card” price, and any discounts to this price would depend on the percentage of a particular retailer’s customers that would subscribe to Sky’s CPSCs via that retailer. This approach was, in Ofcom’s view, likely to reduce incentives to innovate and would also be an impediment to competition.
4. As a result of Ofcom’s findings it declared that pursuant to section 316⁴of the Communications Act 2003 (“CA 2003”) a term was imposed in the licence of Sky fixing the price that it must offer the wholesale of CPSCs, the wholesale must offer (“WMO”) obligation.

Sky appealed this decision arguing that Ofcom did not have jurisdiction to impose the WMO obligation, and challenging the conclusion of fact by Ofcom as to the existence of the practice referred to in point (1) above. Before CAT, Sky lost the jurisdictional argument but succeeded on the merits in overturning the finding of fact as to the existence of “the practice”. CAT found that Sky did on the whole engage constructively in negotiations with regard to the wholesale supply of CPSCs.

CAT did not, however, consider it necessary the reach a conclusion on the issue presented in point (3) above (referred to as “the rate-card issue”); seemingly on the basis that regulatory intervention had meant that there was no way of knowing what the result of a genuinely commercial negotiation between BT and Sky would have been as regards the rate card price (see [821] of CAT’s judgment).

BT appealed this decision as amounting to an error of law and Sky cross-appealed the jurisdiction point.

On the jurisdiction point the Court of Appeal fairly described the statutory context in issue as a “chase through a labyrinth” (which I do not propose to repeat here). But ultimately came down in favour of the view that Ofcom did have the power to impose the WMO obligation, pursuant to section 316 CA 2003. This was the first appeal to arise out of Ofcom exercising its powers under section 316, and so is of considerable importance in the broader context.

The Court of Appeal allowed BT’s appeal on the rate-card issue. It found that (Aikens LJ giving the leading judgment):

1. CAT erred by failing to appreciate the importance of Ofcom’s conclusion that the rate-card issue was one of Ofcom’s competition concerns (see [90]-[91]).
2. CAT had not dealt with Ofcom’s finding that the rate card issue was, in itself, an impediment to “fair and effective” competition (see [94]-[96]).
3. The reasons given by CAT for not dealing with the rate card issue were inadequate (see [98]-[99]).

Even though CAT had rejected the existence of the “practice”, it still needed to deal with the rate-card issue on the merits on appeal.

As a result, the order of CAT has been set aside and the matter has been remitted back to CAT for further consideration. The issues which will fall to be considered are likely to focus on whether Ofcom was justified in treating the rate-card issue as a “competition concern”, and if so, whether this was sufficient justification for the imposition of the WMO obligation.

Therefore, the Appeal has certainly not brought matters to an end. Sky has stated that its position remains that “Ofcom’s 2010 decision is flawed…the WMO obligation ought properly to be removed” and it “will continue to pursue all available options to achieve this aim…”. Whether this means an appeal to the Supreme Court will be interesting to see.

For now, BT has gained an important advantage in this long running battle. Sports fans should be pleased. But it remains to be seen who will win the match. Watch this space.