Spotlight on Sky TV 'overdue'

Sky TV chief executive John Fellet. Photo / Natalie Slade

Competitors say Sky Television has had a charmed run avoiding regulation since it started in 1989 and a recent flurry of scrutiny is long overdue.

But chief executive John Fellet says the pay television near monopoly has "always been under a microscope" and moves by the Commerce Commission are turning people off New Zealand.

The commission last week launched an investigation of Sky TV's contracts with internet service providers, while yesterday the Telecommunications Commissioner indicated he was keeping a watch on provision of content and its impact on the uptake of ultra fast broadband.

"Overseas investors have said to me 'Jeez, New Zealand's just not the place to invest'," Fellet said.

The 2010 regulation of Vector in the electricity market, Chorus this month and then the news on Sky TV last week all led to share prices tumbling.

"The regulatory risk is not as high in other countries," Fellet said.

Sky's share price fell 7 per cent to $5.07 after the announcement last week of the ISP contracts investigation, but had climbed back to close yesterday at $5.14.

The threat of regulation has always hung over Sky TV but it has never seemed to be imminent.

The reaction to the ISP investigation last week followed years when the commission, government agencies and the National Government steered clear of the pay TV sector.

But internet TV ventures like Quickflix and Igloo have acted as a catalyst for competitors calling for more transparency of the content market. An analyst at Morningstar said that regulation is the biggest threat to Sky TV.

But Rob Mercer at Forsyth Barr said that despite the ISP investigation, and the ongoing watching brief from the Telecommunications Commissioner, the regulatory risk at Sky TV was no worse now than it was two weeks ago.

Sky's Fellet said yesterday he was relaxed with the commission's moves because it was obliged to look at the market.

That easygoing approach is in marked contrast to previous years when Sky baulked at the word regulation being mentioned.

Last year Sky strongly resisted a study by Telecommunications Commissioner Ross Patterson into ultra fast broadband (UFB).

Fellet said there was no need for regulation on content and UFB uptake.

"Our point is that the top 10 countries on internet television take-up have no regulation of content," he said.

"The barriers are in cost and data caps. The market will take care of this and it will, too, with Sky. If it does not use up the content someone else will."

Sky had come out well from the Igloo joint venture investigation and the report from the Telecommunications Commissioner, Fellet said.

He said he would be "very surprised" if the commission investigation into ISP contracts led to problems for Sky TV.

Telcos have been critical about the terms of contracts that limit them obtaining content outside of their Sky contract.

"Telco companies came to me and said 'Jeez if you don't do this [provide better deals] I'll get you reviewed [by the commission]'.

"I just said, okay get me reviewed.

"I think Sky has been one of the most scrutinised companies," Fellet said.

Pay TV markets overseas are heavily scrutinised but Fellet said: "We have always been under the microscope - but I am fine with that. If we can't live that way we should not be in business."

Morningstar issued a note yesterday that said Sky TV would likely remain a monopoly through its well entrenched competitive position and the country's small population base.

There was ample opportunity to increase revenue and it had a pristine balance sheet with excellent cashflows to make generous distribution to shareholders.

On the downside the start-up costs for new channels would keep growth down in the short to medium terms, Morningstar said.

Sky was working on building the brand and advertising to drive up subscriber penetration from 51 per cent now to 75 to 80 per cent.