Newscorp-controlled Sky Television is being probed by the Commerce Commission amid growing criticism it is limiting competition in New Zealand's unregulated pay television market.
Sky went from the frying pan into the fire when the commission approved the Igloo TV joint venture with state broadcaster TVNZ only to announce an investigation into its deals with internet service providers.
But Sky chief executive John Fellet is relaxed in the face of a commission investigation that could put its business model under intrusive scrutiny.
Commission chairman Mark Berry said its investigation into Igloo found potential difficulties for new entrants in winning a share of New Zealand's pay-TV market because of the deals between Sky and internet service providers planning new services.
"While this was not part of [the Igloo] investigation, we are aware of concerns that access to content and Sky's contracts with internet service providers may be hindering competition," Berry said.
"As a result, we have now opened a separate investigation under sections 27 and 36 of the Commerce Act."
Approval for TVNZ joining Igloo was expected. But for investors the extended investigation into ISP deals, affecting the growth area of internet TV, was a surprise.
Sky's share price was down 7 per cent, or 42c, closing yesterday at $5.07.
Fellet said Sky had nothing to hide and no concerns about the commission's power of discovery.
Its investigative powers reach beyond formal contracts and into informal deals which industry critics argue are what limits competitors.
Fellet flatly rejects the claim and says the New Zealand pay TV market is highly competitive and Sky would co-operate with the investigation.
He has strenuously resisted any regulatory oversight in the past.
But yesterday Fellett said the commission had no choice but to follow up on complaints he believed had come from MediaWorks, the owner of TV3 and new internet-based pay television operation Quickflix.
ASX-listed Quickflix welcomed the probe, saying the issues raised by the commission were "serious and real".
MediaWorks managing director Sussan Turner said MediaWorks remained concerned about the impact of the Igloo approval. "We firmly believe the joint venture will hamper any potential for competition in the pay market and undermine the strength and diversity of free-to-air television in New Zealand."
Labour broadcasting spokeswoman Clare Curran was concerned the investigation would stop short of the scrutiny of Sky and the pay TV market in a study by Telecommunications Commissioner Dr Ross Patterson due to be released this week.
Patterson has sought a renewal of his contract but that is thought unlikely.
A well-placed source said that both Sky TV and TVNZ had lobbied against his term being renewed , but both companies reject that assertion.
* Commerce Commission chairman Mark Berry: Began inquiry but doubts he will need the commission's powers to uncover Sky's business practices.
* Sky TV chief executive John Fellet: Sky has nothing to hide in its contractual relationships with internet service providers.
* Quickflix: New Aussie pay TV player has complained about Igloo and welcomes inquiry.
* MediaWorks managing director Sussan Turner: Welcomes ISP probe and says there are still concerns Igloo will undermine free-to-air TV.
* TVNZ chief executive Kevin Kenrick: Warm welcome to Igloo approval, no comment on investigations.
* Telecom and Telstra Clear: No comment.
This story has been changed from an earlier version, which said the renewal of Patterson's contract was unlikely after lobbying by Sky and TVNZ. The two companies reject the assertion that they lobbied against renewal of the contract.