ACCC failed on Foxtel-Austar: iiNet

The Australian Competition and Consumer Commission (ACCC) has failed in its duty to foster competition by allowing the $2.5 billion Foxtel-Austar merger to proceed in its current form, according to iiNet.

The ACCC announced this morning that it would not oppose Foxtel — which is jointly owned by Telstra, News Limited and Consolidated Media Holdings — from merging with its pay TV rival Austar, despite concerns raised about the impact that this would have on Australia's IPTV market.

iiNet, which offers IPTV services through FetchTV, said last month that the merger wouldn't do anything to make it easier for companies offering IPTV product to negotiate with film studios and other content providers in order to get content that would make it able to compete with Foxtel.

iiNet's chief regulatory officer Steve Dalby told ZDNet Australia today that the ACCC could have used the merger proposal to consider not just the impact that the merger would have on competition in the subscription TV industry, but also on the wider telecommunications industry, given Telstra's 50 per cent stake in Foxtel.

"The ACCC has shrugged its shoulders and said, 'well, no, that's really beyond the scope of this merger proposal'," Dalby said. "Which is disappointing, because I think their primary role is to look at competition and foster competition and to do it in the interests of the end user. It seems to me they've failed that test on this particular matter."

Telstra will now get a strong foothold for the subscriber pay TV market in regional Australia, Dalby said.

"Now you've got Telstra with its 50 per cent ownership of this merged entity, it's going to be able to dominate the bundled TV and broadband sector with offers in the regions that nobody is going to be able to match, because no one's got the infrastructure in the country to be able to deliver the content you will get on Foxtel and Austar merged together."

Despite iiNet's position as the second-largest DSL provider in Australia, Dalby said that iiNet was not in a position to compete with the likes of Foxtel for overseas content rights.

"We couldn't hope to meet that leverage on our own at any stage. Even if we got as big as we possibly could, we still wouldn't have this buying power in this market."

Instead of trying to compete with Foxtel on its own, iiNet adds what content and services it can to the international FetchTV product. Fetch works with iiNet, Internode and Optus in Australia, as well as Astro All Asia Networks in Asia, to negotiate the content and channels it offers on the FetchTV device that the internet service providers (ISPs) then customise and sell on to their customers as part of a bundled service.

In order to get the ACCC's approval for the Austar buy, Foxtel submitted an undertaking that stated it would not exclude IPTV providers from acquiring rights to content, allowing access to some but not all sports and entertainment content currently locked up by Foxtel. Although this places FetchTV — and iiNet — in a position to get more content and channels like Nickelodeon, Sky News and National Geographic, Dalby said it could be a number of years before Fetch can start broadcasting these channels.

"[It] probably won't do much for the next three years, at least, while their exclusive contracts play out. It's not particularly immediately useful to us," he said. "That's positive to get access to those linear channels, but I'm not positive if that's immediate or if that's when their existing exclusive agreements expire which could be years away."

Dalby added that the ACCC singling out that Foxtel can't bundle exclusive mobile-distribution rights with IPTV was unusual, considering that the government was looking at this sort of issue as part of the convergence review.

"It doesn't seem to make a lot of sense when you've got the convergence review going on in parallel. It doesn't make any sense for the ACCC to be making specific determinations on technology. My first reaction to it is: why is it being split up like that?"

The convergence review committee handed its final report to government, but Communications Minister Stephen Conroy has yet to release the committee's findings to the public.

Also not a fan of the ACCC's decision is Greens communications spokesperson Scott Ludlam, who thinks that the ACCC should have delayed the decision in light of a report published by the Australian Financial Review last month, which alleged that a subsidiary of News Corp, which owns part of Foxtel, has promoted piracy against pay TV rivals.

"The competition impacts of the takeover were troubling enough, and were made infinitely more troubling by the piracy allegations," Ludlam said.

"This takeover will exacerbate the one-way trend towards monopoly in Australia's pay TV sector, and the ACCC should have put any decision on hold until these serious allegations against News Corp entities are resolved."