“We do not believe it to be a reasonable expectation for retailers other than Sky to be prepared to pay the rate-card price for Sky’s Core Premium channels, as these prices would not allow them to compete effectively. This is shown by our pricing analysis as set out in Section 10. A plausible competitor would not be able to generate a return which would cover its costs of capital over a 10-year period plus a terminal value if paying the current rate-card price. The rate-card prices are close to what we would expect under an ex post margin squeeze test Broadly, an ex post margin squeeze test establishes whether the price set by the dominant (vertically integrated) supplier for the sale of its “upstream” product (here Sky’s CPSCs) to third parties is sufficient to cover the supplier’s own costs when selling it downstream, but would be too high for it to be possible for third parties to buy the product at that price for them to sell-on downstream profitably. – ie assuming Sky’s own scale. No entrant would have Sky’s scale; nor would we expect it to be able to reach Sky’s scale, given Sky’s current subscriber numbers relative to the likely number of total pay TV households in the UK.”
“…the level of Sky’s wholesale and retail pricing is also prejudicial to fair and effective competition, which is to the detriment of consumers…”
“Competition concerns relating to [Virgin Media] and its corporate predecessors: terms of wholesale supply – rate card prices”
“We recognise that other retailers, and in particular BT, claim that they would not be able to compete effectively on the basis of Sky’s rate card price. We have not found it necessary or appropriate to reach any specific conclusion about this. Although in negotiations between Sky and BT, Sky was insistent that wholesale prices of CPSCs should be based on the rate card prices, we have found that Sky was open to agreeing discounts from those prices, referable to penetration rates achieved by the retailer. We also found that the negotiations with BT were very significantly affected by the ongoing Pay TV review, and by the prospect of Ofcom imposing a regulatory price lower than the rate card. In these circumstances, when a favourable outcome of the Pay TV review appeared imminent, BT indicated that it was prepared to agree to wholesale supply at the rate card price provided that that agreed price would be changed in due course to reflect the regulatory price. In the event the regulatory outcome preceded the finalisation of the agreement with BT. There was therefore no negotiation on price between Sky and BT which was unclouded by likely regulatory action, and there is no way of knowing what the result of a genuinely commercial negotiation would have been. The same applies to negotiations with other retailers, actual or potential. The negotiations with TUTV and Orange did not founder because of the rate card price, but for other reasons, as discussed at length earlier in this judgment.”
“It is clear (and appears to be common ground) that in a case such as this the Tribunal has jurisdiction to assess and find the facts in so far as they are relevant to the grounds of appeal, and must do so in the light of the admissible material that is before it. If, having evaluated the evidence, the Tribunal finds that a material finding of fact made by Ofcom is wrong, then it must so hold and proceed accordingly. Although a finding of fact obviously involves an evaluation of the evidence, this is not an exercise of discretion, and there is no margin of appreciation (as that notion is generally understood in this context) in relation to such findings, any more than for decisions on points of law.”
“having regard to the parties’ submissions and the authorities to which our attention was drawn, we consider that the following principles should inform our approach to disputed questions upon which Ofcom has exercised a judgment of the kind under discussion: (a) Since the Tribunal is exercising a jurisdiction “on the merits”, its assessment is not limited to the classic heads of judicial review, and in particular it is not restricted to an investigation of whether Ofcom’s determination of the particular issue was what is known as Wednesbury unreasonable or irrational or outside the range of reasonable responses. (b) Rather the Tribunal is called upon to consider whether, in the light of the grounds of appeal and the evidence before it, the determination was wrong. For this purpose it is not sufficient for the Tribunal simply to conclude that it would have reached a different decision had it been the designated decision-maker. (c) In considering whether the regulator’s decision on the specific issue is wrong, the Tribunal should consider the decision carefully, and attach due weight to it, and to the reasons underlying it. This follows not least from the fact that this is an appeal from an administrative decision not a de novo rehearing of the matter, and from the fact that Parliament has chosen to place responsibility for making the decision on Ofcom. (d) When considering how much weight to place upon those matters, the specific language of section 316 to which we have referred, and the duration and intensity of the investigation carried out by Ofcom as a specialist regulator, are clearly important factors, along with the nature of the particular issue and decision, the fullness and clarity of the reasoning and the evidence given on appeal. Whether or not it is helpful to encapsulate the appropriate approach in the proposition that Ofcom enjoys a margin of appreciation on issues which entail the exercise of its judgment, the fact is that the Tribunal should apply appropriate restraint and should not interfere with Ofcom’s exercise of a judgment unless satisfied that it was wrong.”
“Regulatory Provisions”