EU allows Sky Italia to participate in allocation of DTT frequencies, subject to conditions

Tuesday, July 20th, 2010 
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The European Commission has authorised Sky Italia, the Italian subsidiary of News Corporation (NASDAQ: NWS, NWSA; ASX: NWS, NWSLV), to participate in the future tender for the allocation of nationwide digital terrestrial television frequencies in Italy. In doing so, the Commission is relieving Sky Italia of one of the commitments given in 2003, when News Corporation acquired the whole of Stream and merged it with rival pay TV operator Telepiù. Having regard to the significant changes in the Italian TV market in the last few years, the Commission considered it appropriate to accede to Sky Italia’s request but to limit its bidding to one frequency and, should the Italian Authorities decide to allocate it to Sky Italia, to limit its use to operate exclusively free-to-air channels for a period of five years.

The Commission has agreed to relieve Sky Italia of a 2003 commitment preventing it from participating in the public tender for the allocation of digital terrestrial television (DTT) frequencies or multiplexes. The decision will allow the company to bid for one multiplex and to use it only to broadcast free-to-air TV – not pay-TV – for a period of five years. The commitment at issue would have ended on 31 December 2011. The switch from analogue to digital terrestrial TV will be completed in 2012 in Italy. The frequencies tendering process has yet to take place.

On 2 April 2003 the Commission authorised News Corporation Limited (Newscorp) to acquire control of Telepiù Spa and Stream Spa, which gave rise to a new digital satellite television company named Sky Italia. As the transaction created a very strong position on the pay-TV market (as opposed to free-to-air TV that was not affected by the operation) the Commission attached a number of strict conditions, under which they were not allowed to offer pay-TV other than on satellite. They were also not allowed to keep or acquire DTT frequencies (see IP/03/478). The overall commitments, valid until 31 December 2011, were designed to limit the market power of Sky Italia in the pay-TV. The Commission also facilitated entry in the market for new companies by making sure they would have access to the infrastructures and the content necessary to effectively operate pay-TV services in Italy, irrespective of the platform.

In November 2009 Sky Italia asked the Commission to be relieved of the commitment in respect to the DTT platform so as to be able to participate in the future tender for the five new DTT multiplexes to be organised by the Italian Authorities.

The Commission can modify commitments if the market circumstances have changed significantly. It believes this is indeed the case of the Italian TV market.

Firstly, market circumstances have changed significantly and on a permanent basis since 2003. Thanks to the commitments attached to the 2003 decision, alternative players (Mediaset, Telecom Italia/Dahlia) have entered the Italian pay-TV market through DTT, even though Sky Italia has maintained its strong position on satellite. Those new players use their own and other parties’ frequencies and network infrastructure to deliver content (both free-to-air and pay) to viewers on the DTT platform that already reaches a number of regions. Moreover, where available, the DTT platform rapidly became the leading platform for digital TV consumption in Italy and will very likely remain in this position for many years ahead especially after the analogue switch off (by 2012). Finally, since September 2008, a new digital satellite platform (TIVU Sat), set up by RAI, Mediaset’s RTI and Telecom Italia has been created and is now available to Italian consumers.

Secondly, the upcoming tender is a unique opportunity – and the last one for many years ahead – for operators like Sky Italia to enter the DTT platform in competition with the incumbent broadcasters. Currently, the frequency spectrum is still largely in the hands of the incumbent broadcasters. Indeed, out of the 21 multiplexes reserved for digital TV broadcasting, 16 are already assigned or planned for assignment, with Mediaset, RAI and Telecom Italia having together 11 multiplexes.

The market investigation has, nevertheless, raised some concerns that Sky Italia’s significant market power on pay TV, and particularly on satellite, would be strengthened by its entrance on DTT. To address this concern, Newscorp has committed that Sky Italia will bid only for one of the five multiplexes to be tendered.

Another concern was that Sky Italia would switch to pay TV as soon as the 2003 commitments expire on 31 December 2011. But Newscorp committed that Sky Italia would use the multiplex acquired in the upcoming tender to operate free-to-air channels for a period of five years.