Sky Network Television, New Zealand's dominant pay TV operator, has been warned that provisions in its contracts with telecommunications retail service providers (RSPs) are likely to have breached competition law.
Regulator the Commerce Commission issued the warning after an investigation found that current provisions are unlikely to have lessened competition and are unlikely to cause harm in the future. However, the commission put Sky on notice that it will continue to monitor its contracts and conduct with ISPs reselling its exclusive content.
No further action will be taken over what the commission describes as "historical breaches".
"We believe that Sky entered into historical agreements with RSPs that had the purpose, effect, or likely effect of substantially lessening competition," Commerce Commission chairman Dr Mark Berry said.
Sky TV has a household penetration rate in New Zealand of around 50 percent. In March, Rupert Murdoch's News Corporation sold its 43.6 percent stake in the company.
The commission was concerned about "key commitments" in the contracts. While the purpose of these has likely remained unchanged, it says they are unlikely to have the same effect in the current market.
"Due to market developments, the key commitments Sky has with RSPs are unlikely to continue to have the same effect," Berry said, citing a recent market disruption with the entry of a new sports pay TV product and the recent exemption granted by Sky to Telecom New Zealand to market that product.
Berry said that if evidence is brought to the commission's attention that competition is, or is likely to be, substantially lessened, it will take enforcement action to ensure that the long-term interests of consumers are protected.
"In this respect, we reserve the right to draw the warning letter that has been sent to Sky, to the attention of a court in any subsequent proceedings against Sky."
Such a case could take years to conclude and cost millions of dollars, Berry said.
The commission also concluded that Sky's contracts with content providers are not likely to have breached the Commerce Act, as there appeared to be sufficient content of all types available outside of Sky's exclusive contracts to put together an appealing pay TV package.
The commission said its decision does not stop other parties from taking their own private action.
Section 27 of the Commerce Act makes it illegal to "enter into a contract or arrangement, or arrive at an understanding, containing a provision that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market".