Why the NBN Means Foxtel And Austar Shouldn’t Merge

In practical terms, pay TV seems simple in Australia: you get Foxtel if you live in a big city, Austar if you live in a rural area, and essentially the same channels on offer through either service. Despite that, the ACCC doesn’t seem too keen on letting Foxtel pursue its plan to take over Austar — and the NBN plays a key role.

Picture by Stephen Dann

Foxtel announced its plans to merge with Austar on May 26, and the main terms of the deal were thrashed out by July 11. However, the deal can’t go ahead unless the ACCC approves it, and the ACCC won’t approve it if it feels that competition will be lessened. A statement of issues issued by the regulator today says that it has formed a view that competition will be reduced and that the deal shouldn’t be approved, but it wants more information before making a final decision.

There is only one area of Australia where both companies actually sell services in direct competition: the Gold Coast. That’s enough, however, for it to be considered a competitive issue under ACCC rules.

The bigger picture issue, though, is that the eventual introduction of the National Broadband Network (NBN) will provide a new mechanism through which pay TV services can be delivered. At that point, Austar could easily expand into urban markets without needing to build its own cabling, and Foxtel could sell to rural consumers without needing satellite access. That would provide a potential source of competition — but that won’t happen if the two companies merge.

The ACCC makes that very clear in the statement of issues it put out today:

FOXTEL and Austar are the only significant providers of subscription television services in Australia. The proposed merger would therefore effectively create a near monopoly subscription television provider across Australia. In the absence of the proposed acquisition, and in particular following the rollout of the NBN, the ACCC considers it likely that industry changes will substantially increase the ability and incentive for FOXTEL and Austar to compete with one another outside of their existing distribution regions. The proposed acquisition would prevent any such competition from occurring.

Another obvious source of competition would be from online IPTV services such as FetchTV, as well as Internet-delivered entertainment. However, the ACCC argues that so far it hasn’t seen much evidence that these directly compete with pay TV:

On the information available to date, there appears to be limited substitution between subscription television services and other audio visual content delivery services such as mobile TV, YouTube and AppleTV/iTunes.

We know that amongst Lifehacker readers, the overwhelming reason for having pay TV in the first place is to access sport — a live event which can’t easily be shared via torrent and which commercial networks often treat dismissively. But there’s also the argument that a more flexible range of options, such as per-channel subscriptions, would appeal to cash-conscious viewers.

The other area where the ACCC argues the merger would be a problem is because it would give Telstra an unfair advantage in constructing bundled deals which add pay TV to other services. Telstra has a 50% share in Foxtel, and as such might not be keen to let other telcos and ISPs offer Foxtel as part of their bundles:

Market participants are of the view that Telstra is well placed to provide a bundle of services to consumers by virtue of its shareholding in FOXTEL. However, other telecommunications providers and ISPs are concerned that because they lack corporate or commercial links to subscription television providers of substantial scale, they will be at a disadvantage relative to Telstra in being able to provide consumers with a bundle of services.

The ACCC is inviting submissions from the industry and interested viewers, and says it will make a final decision by September 8. Would you like to see more competition in pay TV services? Would you prefer a better range of bundles? Tell us in the comments.

ACCC statement [PDF link]

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