ACCC seeks comment on section 87B undertakings for Foxtel/Optus proposal

The Australian Competition and Consumer Commission today issued for public comment draft undertakings offered by Foxtel, Optus, Telstra and Austar provided under section 87B of the Trade Practices Act.

The undertakings detail a series of measures offered by the companies to overcome the competition concerns raised by the ACCC about the proposed pay television arrangements between Foxtel and Optus.

"The release of the draft undertakings for public comment should not be seen as an indication that the ACCC has formed the view that the undertakings alleviate all competition concerns raised by the Foxtel/Optus content supply agreement and associated arrangements", ACCC Chairman, Professor Allan Fels, said today. "This process will be used by the ACCC to inform itself of market views on whether the undertakings will likely address the key competition concerns. A final decision will be made after taking these views into account".

In June 2002 the ACCC concluded that proposed arrangements between Foxtel and Optus in relation to pay television were likely to breach the Act. It was found that the form of the proposed arrangements would likely substantially lessen competition and that there were four principal areas of concern. These were:

• the acquisition of content

• the likely dominance of the Foxtel distribution network

• the supply of pay TV services to households

• the provision of channels to third parties who wish to supply pay TV to customers.

The Act enables the ACCC to accept written undertakings in the exercise of its powers. Such undertakings must be of substance and address the conduct that has given rise to the perceived breach of the Act.

"Since reaching its conclusion that the proposed arrangements between Foxtel and Optus would likely breach the Act, Foxtel, Optus, Telstra and Austar have offered the ACCC draft undertakings", Professor Fels said.

Broadly speaking the draft undertakings provide for the following:

• access for third parties to Telstra's cable pay television networks (both analogue and digital) as well as Foxtel's analogue and digital set top units

• a commitment by Telstra to commence supplying a digital subscription television carriage service and by Foxtel to commence supplying digital set top unit services

• access for third parties who own, operate or control cable, satellite or MDS networks to Foxtel programming (the basic package and tiers)

• acquisition by Foxtel and Optus of particular pay television channels only on a non-exclusive basis
• commitments that relate to the make up of Foxtel and Optus' programming (including the level of expenditure on independent Australian content) and the retail price of Foxtel programming

• removal of a first and last bid right clause that was proposed to be granted to Foxtel in the event Optus decided to sell certain assets.

"Given the number of parties providing draft undertakings and the complexity of this matter, the ACCC has prepared an issues paper which provides an overview of the various draft undertakings.

"At the same time the ACCC is also conducting market inquiries in relation to a third line force notification lodged by Telstra in July 2002. The notified conduct involves Telstra Pay TV providing pay television services at a discount to retail customers who also acquire telecommunications services from Telstra Corporation.

"The ACCC is conducting market inquiries for these matters simultaneously as the outcome of its considerations regarding the proposed arrangements between Foxtel and Optus and draft undertakings has the potential to impact on the competitive environment in a number of telecommunications, and telecommunications-related, markets. This may have implications for the ACCC's assessment of the notification. A further issues paper which has been prepared in relation to the notification process is also being released seeking comment".

Comments are sought from interested parties on both the draft undertakings and Telstra third line force notification by 27 September 2002.

Background

Under section 87B of the Act the ACCC may accept written undertakings given by a person in connection with a matter in relation to which the ACCC has a power or function under the Act. These undertakings may be withdrawn or varied at any time, but only with the consent of the ACCC.

The following outlines the draft undertakings provided by Foxtel, Optus, Telstra and Austar.

Foxtel

• Analogue access undertaking – provides that Foxtel will give the ACCC a written access undertaking in relation to the declared analogue cable pay television service (set top unit services in particular) under section 152BS of the Act. The undertaking also refers to the fact that there will be specified transition provisions from analogue to digital.

• Digital access regime – provides that Foxtel will supply digital set top unit services to third parties in accordance with specified terms when Foxtel commences supplying commercial retail digital subscription cable television services.

• Commitment to digital - provides the conditions and timing under which Foxtel will commence supplying a commercial retail digital subscription cable television service.

• 3G, internet and high-speed broadband content rights – provides that Foxtel will not jointly bid for, or license, such rights to Telstra, Telstra Media, Sky Cable, News, PBL or their related parties on an exclusive basis.

• Shared channels - provides that Foxtel will not acquire pay television rights to particular channels currently acquired by both Foxtel and Optus on an exclusive basis.

• Supply of Foxtel pay television services – provides for the supply of Foxtel pay television services to an owner, controller or operator of cable access network, satellite network or MDS systems on specified terms.

• Amendments to the Foxtel/Optus Content Supply Agreement – provides for the removal of the first and last rights clause and amendments allowing third parties to access the Optus network for the conduct of a pay television service, provided that subscribers to third party services also acquire the Optus access package.

• Community channels – provides for the supply of two community channels once Foxtel commences supplying a digital (cable or satellite) pay television service.

• Local content – provides that Foxtel will spend a minimum amount on Australian programs produced by third parties who are not related parties of Foxtel, Telstra, Sky Cable, Telstra Media, News or PBL.

• Non-affiliated channels – provides that at least 30 per cent of the pay television channels in Foxtel’s basic package (not including the open broadcast re-transmission, the electronic program guide or radio channels) will be comprised of non-affiliated channels.

• Price of Foxtel’s basic package – provides that the price of Foxtel’s basic package on Foxtel’s cable and satellite pay television services will not exceed the retail price, adjusted for CPI, of satellite services for at least three years after the date the undertakings take effect.

Optus

• Shared channels – mirroring the Foxtel undertaking it provides that Optus will not acquire pay television rights to particular channels currently acquired by both Foxtel and Optus on an exclusive basis.

• Amendments to the Foxtel/Optus Content Supply Agreement – mirroring the Foxtel undertaking it provides for the removal of the first and last rights clause and amendments allowing third parties to access the Optus network for the conduct of a pay television service, provided that subscribers to third party services also acquire the Optus access package.

• Seven non-Foxtel channels – provides for at least seven channels to be supplied on Optus' pay television service that are not currently offered by Foxtel for at least three years after the Foxtel/Optus Content Supply Agreement comes into effect.

• Optus channels – provides that Optus will continue to provide two channels which are compiled by Optus and comprise programming created or acquired by Optus for at least three years after the Foxtel/Optus Content Supply Agreement comes into effect.

• Australian drama programs – provides that Optus will source and show Australian drama programs on one or more of the Optus channels for at least three years after the Foxtel/Optus Content Supply Agreement comes into effect.

Telstra

• Declared analogue services access undertaking – Telstra undertakes to change its current capacity allocations so as to make 10 channels in respect of the declared analogue service available on its HFC network on condition the ACCC accepts the analogue access undertaking to be provided by Telstra under section 152BS of the Act. These channels would be for use by persons other than Foxtel.

• Investment in digital pay television carriage service – provides the conditions and timing under which Telstra will commence supplying a digital subscription television carriage service.

• Digital access regime – provides that Telstra will supply digital carriage services to third parties in accordance with specified terms when Telstra digitises its HFC network.

Austar

• Supply of Austar Pay Television Service – provides for the supply of Austar pay television services to an owner, controller or operator of cable access network, satellite network or MDS systems on specified terms