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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    The ACCC could always use a win. Companies will have a cry but the ACCC is severely under-resourced so whatever they decide, I hope their good judgment gets publicised and praised.

    Many inner-Sydney suburbs use Austar as there was no cable run through their streets. No overhead eyesore cables. Just dishes dotting the roof line. So Austar already has what I think could be a reasonable city customer base - that Foxtel can't get.

    However, given that neither company offers a tailored package to meet channel preferences or family budgets, I won't be signing up to either any time soon.

    Optus had a cable package years ago that cost only $8.95 per month, until they decided that everybody had to have a $33 per month package instead. Needless to say they ended up with a lot of set-top boxes returned by customers and additional costs as contractors went through the suburbs collecting the boxes from disgruntled Optus customers. Back then, I asked for a tailored package, but the Optus "yes" was an Optus "no"!

    The business models of Foxtel and Austar still don't see the point, especially since I can get the same repaeats through FreeView. Sport, of course, is another matter, and the factor that drives packages and prices. I can't see that changing any time soon.

      You are confused. Sydney is serviced by Foxtel. Not all of Foxtel's customers are serviced by HFC - in fact more than 50% of Foxtel's customers are serviced by satellite.

      The satellite broadcast is shared between Austar and Foxtel, but that's an entirely different matter.

      Also, all of the Telstra HFC network is deployed underground where there is sufficient duct space to do so. Only where there is no space, are cables hung on power poles.

    I think it's a deal that should go ahead. If we are to have ubiquitous broadband, then we should have ubiquity with PayTV options as well, regardless of location.

    If content deals can be worked out I assume there will be spades of future competition from big companies entering the Australian market like NetFlix. The NBN will no doubt encourage a range of new content providers to enter the market as we'll finally have the bandwidth for high definition live streaming of events.

      A self confessed socialist commenting on corporate competition? Hehehe - anyone else find this ironic?

        Yes, me. Given the irony was intended!

    As a consumer I want access to the Foxtel service. My Austar box, menu, features have always been of lower quality than Foxtels. I love the way it misses recording bits of the programs, resets itself just for fun, fails recording regardless of how many upgrades I do. If I only have access to one provider it's a monopoly anyway.

      Well said. I live in an Austar area and cancelled my service a year ago for these very reasons. It's a second rate experience. Foxtel looks much more appealing and I would definitely consider it if it were made available here. I just want access to high definition movies, shows and sport at a reasonable price with a good quality dual channel PVR that actually works as advertised.

      I’m honestly not sure that Foxtel’s hardware would be significantly better (after all, both companies sell re-branded generic hardware; in much the same way as Telstra sold rebranded Huawei phones).

      Assuming that Foxtel’s hardware is better, is a monopoly going to improve that?

    "you get Foxtel if you live in a big city, Austar if you live in a rural area"

    Not entirely accurate, I live in regional WA (South West) and get Foxtel Satellite.

      Obviously you skipped over the earlier part of the sentence that stated "In practical terms...".

      There's no hard and fast rule for what geographies Foxtel and Austar each cover, but as a generalisation, Gus is largely correct - although as has been pointed out, there are exceptions.

    I've skimmed through the ACCC's paper, but I have to say it doesn't make a lot of sense.

    Let's look at just one of many examples I could give - How can they say that, so far as acquisition of audio visual content is concerned, FTA broadcasting is not a substitute for subscription services (see para 40) but that, in relation to supply of advertising, FTA broadcasting and subscription services are substitutes (see para 47)? That defies logic.

    There are several other problems too, such as the way the relevant "market" is defined, etc, etc.

    The most problematic theme, however, is the speculation as to what may or may not happen under once the NBN is up and running. The law in this area requires the ACCC to consider what is "likely" to happen if the proposed merger does not take place (and in this context they may take into account possibilities which are not remote). However, there are aspects of the paper which describe mere possibilities as to what might occur in a post-NBN environment. This is all just unsubstantiated conjecture! On what basis do they make guesses like these?

    The ACCC are not supposed to be astrologers, so this kind of thing is unwarranted.

    I hope that Foxtel takes this decision to court. It would be nice to have the ACCC mandarins put in their place!

    I honestly do hope that the NBN infrastructure deployed does serve to encourage further growth; however I am sceptical of this. Socialist Sam says that the NBN is ubiquitous broadband, however let’s not forget that the NBN won’t be the company selling us and charging us for access to it. There's no shortage of households on ADSL 2 broadband as is, and with every ISP and their dog selling their own form of IPTV, I don’t see ISPs being willing to open up traffic for the likes of Netflix etc for unmetered content.

    In having said that though, I don’t think that Foxtel and Austar can seriously be considered competitors to each other. They’ve long since become established now that if they were going to move into each other’s areas they would have done so; especially considering that both sell satellite based services. If any such merger does go ahead, I can’t see it meaning much to the average consumer; but I can potentially see how having one single large pay-TV provider would affect future opportunities for newer subscription based home entertainment.

      "especially considering that both sell satellite based services."

      That was going to be exactly my point. Especially since it is from the SAME Satellite with the SAME coverage area.

      Coverage Map: http://www.satbeams.com/footprints?position=156

      List of channels: http://www.satbeams.com/channels?position=156

    And when Foxtel pay 1,400,000,000 for NRL rights, what chance do you think anyone else will have to entice users to other services?
    If you live overseas you can stream NRL games for $10 a month. If you're in Oz minimum $60. Yes you get extra channels but how much crap can you really bear to watch each week?

    Interesting , we were advised that it is already going ahead via email, I work for one of the company's listed, and we have been told it is all go and will be finalized in December.

    Have any of you experienced the hardware and services provided by Austar?

    Once you do, then you'll understand how DESPERATE it has become that Foxtel buys out or merges Austar in to one entity, enabling us rural users the use of the same technology you 'city folk' take for granted.

    Trust me, I miss my Foxtel. Makes me realise how great the technology, service, and hardware is!!!


      You miss your Foxtel? Do you have a decent ADSL2 connection? I live quite remote as well, and have managed to get foxtel running on my xbox (with Telstra, so downloads are unmetered) - not quite the same (few channels missing, some shows not available), but its much better than watching prices of stock and advertisements telling aboriginals not to sleep on the road

    I say let it go ahead i moved to a area that can not be serviced by foxtel and i had to switch to austar and i hate to say but the quality difference is unbelievable... I had no problems with foxtel equipment at all and i had so many extra options but austar the box freezes like 3 times a day it doesnt record, it resets itself all the time it is more an inconvenience than anything... For the amount of many we have to pay for these services it is not fare that i get the raw end of the stick just because i wanted to live a little bit further out...
    Needless to say im cancelling my austar and praying that foxtel will be available to me soon :-)

    The argument can be made that the NBN will provide the distribution means for as many content providers as want to enter the market. Rather than this merger stifling competition that's non-existent anyway the rollout of the NBN will ensure the means for greater competition to occur. Bring it on I say as I've been itching to get Foxtel on my Xbox but as my area is an Austar fiefdom Foxtel won't allow me to subscribe becasue of agreements between them & Austar. Now THAT is stifling competition. If competition truly existed then we'd be able to have the choice between the 2.

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