Adam Smith Institute

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Can you hear me, BSkyB?

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David Cameron’s recent speech, in which he emphasized his determination – if elected as Prime Minster next year - to slash the number of quangos, is to be welcomed. Interestingly, with one stark exception, the details were sketchy. Clearly in Cameron’s sights, is the sprawling empire of Ofcom, which has become far more than a regulatory back-stop and is now effectively a Department of Telecoms and Media.

In recent weeks, Ofcom has earned the wrath of BSkyB, part of the News Corporation stable, which controls leading newspapers such as the Times, the Sun and its week-end equivalents. Ofcom has proposed that BSkyB should be obliged to offer access, on wholesale terms, to its football and film Pay-TV rights – acquired at massive cost – to its competitors, most notably BT and Virgin Media.

If this proposal were ever implemented, BSkyB would be forced to lower its prices quite markedly, which would inevitably have an impact on future Pay-TV rights valuations: the next Premier League Pay-TV rights auction is due in 2012. Why, it could be asked should BSkyB be required to share its Pay-TV rights? After all, competitors, like BT and Virgin Media, have every opportunity to bid for TV rights packages themselves.

In reality, the chequered past of both companies still haunts their finances. Although BT’s net debt is now close to £10 billion, it remains desperately constrained by its global business setbacks and its burgeoning pension fund liabilities. Virgin Media includes the one-time cable duopoly, NTL and Telewest, both of which racked up vast debts and delivered dreadful share price performances.

Nonetheless, Cameron’s quango initiative, and especially its focus on the ever-expanding Ofcom, represents sound political thinking, which will be carefully noted by those who control News Corporation as they discuss their political options over the next year.

Can you hear me, BSkyB?