Once again Australian television and telephony consumers will be shackled with special arrangements, favouritism and patching up past mistakes.
This week the Australian Competition and Consumer Commission finally came to what it (and other commentators) naively imagine will be a rescue of Australia’s pay television industry.
It agreed to authorise what would otherwise be an illegal anti-competitve arrangement whereby Australia’s two main providers of pay television Foxtel and Optus would be able to share pay TV programming and each would be able to bundle telephony, internet and pay TV services into one package with one bill.
If it had not done so, Optus (owned by Singapore Telecommunications) would have pulled out of the pay TV market and left Foxtel with the monopoly. It might have withdrawn from non-mobile telephony too, leaving Telstra (part owner of Foxtel) with the monopoly. Optus would have been forced out because it had inferior content and so had difficulty persuading people to sign up. For the time being, at least, there will be two competing providers of the one suite of programs. Optus has in effect withdrawn from content provision and will instead offer the superior Foxtel programming (which will include the programs the Optus has abandoned). The competition will lie in the way they bundle telephony and internet services.
The ACCC put some conditions on its approval. And here it gets messy. Foxtel agreed to invest $600 million in a new digital pay TV network. Foxtel must allow other providers, such as TransACT and any new comers, access to pay TV content at fair and commercial terms. It must allow access to its analog network. And there are some price capping requirements.
In all, it seems that the ACCC under chairman Allan Fels has taken on a new role – pay-television regulator. Since March when the programming proposal was first mooted, the ACCC has engaged in a detailed quasi-bargaining operation with the pay TV operators – putting its nose in where it has neither the skill nor mandate.
The ACCC justified its position by saying, “Professor Fels emphasised the undertakings are not intended to alter the pre-existing competitive landscape in the pay TV industry. The ACCC’s role is to decide whether the undertakings address the potential anti-competitive conduct of effects arising directly from the content-sharing arrangements. In this case there was evidence that the competitive position of Optus was being adversely affected by its inability to access and supply key content to its customers.’’
That is a quaint way of putting it. In fact Optus paid too much money for inferior product. It grossly misjudged the value of the content it was buying. That’s called market forces. And why should the regulator rescue Optus from those forces operating on Optus’s own poor decisions and in doing so alter the pre-existing competitve landscape, despite its protestations to the contrary?
Foxtel, too, paid far too much for its content.
Since it began in the mid-1990s the pay TV industry in Australia has lost about $8 billion.
Any other industry that made such costly blunders in their investment strategy would be made to stew in their own juice. But because it is media and big, powerful media figures are involved a different set of rules apply.
There is no public interest in allowing the creation of a virtual monopoly supplier of pay TV programming and a monopoly network to deliver it. And there is even less public interest in the ACCC putting its stamp on the throwing good money after bad by (subject to legislation now before the Parliament passing) making its approval conditional on $600 million worth of digitisation.
These are grown-up investors they should make investment decisions free from special favour-giving, monopolistic arrangements.
Again, we are suffering from the failure of Governments since the 1980s to understand the pernicious nature of vertical monopolies – where one corporation owns both the carrying network and the services that runs on it. They are exploitative an inefficient. There should have been a single network owner (whether public or private) for each of landline telephony; mobile network; and pay TV network. Service and content providers could then compete in delivering through those networks.
As it is, the original models for all three were flawed and consumers will pay for every patch-up job since – including the one this week.
Canberra is likely to be a major testing ground for the latest effort. TransACT will have little choice but to go cap in hand to the new Foxtel content monopoly and use that service as the pay TV component of its bundled telephony, internet and pay TV service. Bearing in mind that Foxtel is jointly owned by Telstra, Rupert Murdoch’s News Corp and Kerry Packers PBL, can we seriously expect TransACT to be in any bargaining position? No. TransACT will most likely have to either go to the ACCC or court to enforce this week’s agreement. Once again the ACCC will be the de-facto pay TV regulator.
It would have been far better to have allowed Optus to have been driven from the pay TV market. Foxtel should not have been given the equivalent of an official approval for its $600 million investment in digital pay TV because when it inevitably turns sour it will seek more concessions and bail-outs.
The market should have been allowed to run its course. If the pay TV operators were too stupid to put together good business plans, their businesses should fail. They paid too much for the raw product they were passing to consumers and they over-estimated demand.
They over-estimated the willingness of ordinary Australians to pay for something they already get enough of for nothing – television. They imagined that Australians would take up any new technology – like colour TV, VCRs, microwaves or mobile phones. But the Australian consumer is not stupid. Those technologies had something to offer which was value for money.
It seems the pay TV operators and the ACCC itself has misunderstood the nature of the market – its is a market in television, not pay television. The market in television includes free-to-air, VCR and DVD. In that market, pay TV might well be a lost cause and it would have been in the public interest to let market forces kill it off instead of allowing it to throw good money after bad.