Analysts: BSkyB Will Benefit from Ruling on Sports Channels Pricing
A competition tribunal's decision is "a bit of a slap in the face" for U.K. media regulator Ofcom and "a vindication for BSkyB," says one observer.
LONDON - A U.K. regulatory body's ruling late Wednesday that pay TV giant BSkyB can appeal a 2010 decision by media regulator Ofcom about the way the company makes its sports channels available to competitors like BT and Virgin Media is good news for BSkyB and its stock, analysts said Thursday.
Indeed, BSkyB's stock was up 1.6 percent in early trading and finished the day higher. The stock went as high as £7.62 ($11.90), a nine-months high and close to its 52-week high of £7.75 ($12.10).
The Competition Appeal Tribunal confirmed Ofcom's jurisdiction, but allowed BSkyB to appeal the regulator's formula for channel wholesaling as CAT described Ofcom's competition analysis and rules as misguided in some respects. BSkyB had appealed the rules, arguing they represented an interference with the market.
"The CAT decision looks like a bit of a slap in the face for Ofcom and a vindication for BSkyB in some of its pricing claims," Peel Hunt analyst Patrick Yau told THR. "The ruling is now likely to pave the way for Sky to lift its wholesale pricing for its premium sports channels" Sky Sports 1 and Sky Sports 2.
"The ruling did indicate Ofcom has misinterpreted evidence to the detriment of Sky," said Jefferies analyst Will Smith.
Currently, the BSkyB channel wholesale rate is determined by regulators via a formula, although that is based on Sky Sports' retail prices. This will continue to be unchanged until any future decisions on whether the current arrangement is fair or BSkyB should be able to set the rate. "Bottom line, nothing is changing at the moment, but the ruling looks positive for Sky with the tone indicating they may allow Sky to control pricing at some point in the future," Smith said.
UBS analyst Polo Tang also called the decision "positive for BSkyB."
His feared worst case outcome for BSkyB, namely that telecom giant BT may get the right to offer more of BSkyB’s content at a lower regulated price is now "less likely to happen," he said. "We see this outcome as a notable positive for BSkyB as it potentially suggests a more benign competitive U.K. triple-play landscape medium-term."
Added Tang: "With potentially less scope for BT to be aggressive in the pay TV market, medium-term visibility for BSkyB has improved and we would expect a positive reaction in the share price."
That said, analysts said there may be legal appeals in the future.
Yau said though that financially there may not be a big difference for BSkyB. "Wholesaling channels represents just 5 percent of Sky's revenues," he told THR. "Overall, the ruling in itself doesn't move the dial too much, but does put Ofcom in a pretty poor light."