from Crikey …..

Foxtel-Austar merger the worst competition decision in years

Glenn Dyer and Bernard Keane write:

ACCC, AUSTAR, FOXTEL, JAMES PACKER, KERRY STOKES, OPTUS, PAY TV, RUPERT MURDOCH

The Australian Competition and Consumer Commission's green light for the $2 billion Foxtel takeover of Austar is the worst competition decision since Kim Beazley bested Paul Keating in cabinet in 1990 and gave us a vertically-integrated Telstra. Here's why ... 

1. The good, old-fashioned analogue reason: size, financial strength, profits and subscriber numbers. The merged company will again underline the reality of that financial cliche -- the sum of the parts is larger than the whole. The merged company will be the largest broadcast media group in the country with more than 2.3 million subscribers, more than $1.8 billion in revenues and more than $800 million in earnings before interest, tax, depreciation and amortisation. It will dwarf the faltering profitability of the three FTA networks (Nine, Ten and Seven), plus Fairfax, APN and Southern Cross Austero. Its profit margin will be above 40%, and it will be all thanks to the ACCC, which has confirmed its long and undistinguished history of competition regulators in this country rolling over for the Murdochs and News Limited at crucial times.Remember the 1986 approval from the old Trade Practices Commission that allowed News to buy control of the Herald and Weekly Times? That approval and the media law changes driven by the Hawke and Keating governments have ended up cementing News Ltd's control of the newspaper and pay-TV industries in this country. So much for being either a prince of print or a queen of screen -- News Ltd will be both.

          Then there was the 2002 Foxtel takeover of Optus' struggling pay-TV business, with attached undertakings that were meaningless as the newly-enlarged Foxtel expanded and digitised its

          network and introduced its IQ box and player, boosting subscriber numbers to just under 1.6 million. And now this decision.

    2.  It fails to address the role of Telstra. The ACCC should have made approval conditional on Telstra selling its 50% stake in Foxtel. Foxtel wants that, it wants to go heavily into satellite

         broadcasting (Austar is 100% satellite) and emulate BSkyB in London where Foxtel boss Richard Freudenstein cut his teeth and became chief operating officer. Foxtel wants to get rid of the

         $100 million it pays Telstra in carriage fees for the use of the telco's HFC cables across Australia. Freudenstein knows Foxtel's future isn't in offering just pay-TV, but in offering internet-based

         and other services as well, as BSkyB has done very successfully in the UK (more than 6 million of its 10 million-plus subscribers take high-speed broadband and associated services by

         BSkyB now, against nil 10 years ago).

         That is the future: Comcast, AT&T, Verizon, Cox, Time Warner and other US cable groups and telcos are busily expanding into each other's turf via high-speed broadband, mobile phone and

         other services. The number of basic cable subscribers in the US is falling because of the recession, but the number of premium subscribers with cable, broadband, mobile and other services

         is rising. At the moment its a future that Foxtel, courtesy of Telstra's ownership, will struggle to pursue. Separated, the two companies would be competitors in the new world of data, telephony

         and content services via the NBN.

         The ACCC has also allowed Kerry Stokes to emerge as the dominant broadcaster in the country (and the media generally) with this decision. James Packer is stalking Eco (the holder of the

         Sydney Casino licence) and wants control. Selling his 55% stake in Consolidated Media (owner of 25% of Foxtel and 50% of Fox Sports) would raise well over $1.5 billion and finance that

         deal. Stokes is sitting there with 25% of Cons Media and is the buyer. Control would see him add a major stake in pay-TV to his Seven TV network and West Australian Newspapers. As pay-

    3.  TV is not considered a "voice" under the current media legislation, Stokes is free to buy.

         Foxtel's undertakings are weak. They last for eight years and are supposed to promote competition in newer areas of IPTV and mobile TV. But they only prevent exclusivity and cover a bunch

         of moderately popular to almost ignored pay TV channels in this country. A more significant change would be to force Foxtel to offer access to Fox Sports, Fox Footy or even Fox 8, which are

         the heart of News Ltd's dominance over pay-TV content in this country.

    4.  Bizarre timing. You also have to question why the ACCC approved this deal ahead of the outcomes of the convergence review and an indication of what the broadcasting landscape will look

         like beyond the analog switch-off. And the ACCC should have at least waited for the Optus fair dealing case, now under appeal, to be resolved. That is the most important legal case involving

         the Australian media for years. If Optus' plans to use the fair dealing section of the Copyright Act are upheld all the way to the High Court, then the undertakings extracted from Foxtel have

         some value. But sports rights will be devalued and it could be the case that Foxtel has paid too much for Austar (not the ACCC's problem; that's Foxtel's concern and that of its shareholders).

If the coalition of media groups and sports manage to kill off the Optus fair dealing case then the undertakings are next to useless. Leveraging mobile and IPTV rights into a viable service would become a lot more difficult.

The Optus case has the potential to unlock the media landscape in this country. The ACCC decision to give a green light to the Foxtel acquisition of Austar (and leave Telstra dominating Foxtel) will set the media landscape in this country in cement for years, with new potential competitors unable to compete on a level playing field if and when the NBN arrives. The ACCC missed a major moment in the history of regulation in this country and a chance to boost national productivity and the pace of technological change.