BSkyB, Virgin locking horns

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LONDON -- In the latest phase of a bitter and entrenched battle for the U.K. broadband television market, Richard Branson's Virgin Media has accused satcaster BSkyB of "trying to stifle competition" by refusing to license its Sky-branded basic tier entertainment and news channels to Virgin's 3 million cable television homes.

The move would mean that Sky channels, including Sky One and Sky News, come off cable for the first time in 18 years and would cost Sky more than £45 million ($88.4 million) a year in estimated lost revenues, Virgin said in a statement. "(Sky's) willingness to do so speaks volumes about their desire to suppress meaningful competition," the statement said.

Virgin Media chief executive Steve Burch took the unusual step of discussing the deal while carriage talks are still ongoing, a move that Sky has branded "surprising and disappointing."

Burch told BBC radio that talks faltered after Sky tried to force it to pay twice its current charge to renew the contracts for Sky One, Sky Two, Sky Three, Sky News and Sky Sports News.

"Sky has consistently demanded a carriage fee more than double the existing arrangement," he said.

If a deal cannot be agreed on, the Sky channels will cease to be available on cable beginning March 1, slashing the available audiences for Sky's channels by 3 million homes. It would come just weeks after Sky said it would take Sky Three, Sky News and Sky Sports News off leading digital terrestrial platform Freeview in a bid to launch its own free-to-air digital platform, costing them carriage in a further 8 million homes. Premium movie channels Sky Sports and Sky Movies are unaffected.

The loss of carriage on cable and Freeview could potentially be disastrous in ratings terms for Sky. It would mean that Sky News' potential audience would be cut from 19 million to just the 8 million homes on Sky's own digital platform. Sky One, which recently signed an estimated £40 million ($78.6 million) deal for "Lost" will see its audience cut from about 11 million to 8 million if an agreement with Virgin cannot be brokered.

"Following an intensive series of meetings over the past week, we now anticipate a withdrawal of these channels by Sky at the end of February. The nature of these negotiations leads us to believe that this outcome has been deliberately engineered by Sky in order to suppress competition and coerce Virgin Media's customers into switching to its service," the Virgin CEO said.

"Throughout its history, Virgin has challenged the attempts of dominant corporations to manipulate markets, stifle competition and dictate consumer choice. It has done so simply by giving consumers a better deal," he added.

BSkyB said it still wants to pursue discussions.

"With several days remaining and active discussions continuing, we're surprised and disappointed that NTL/Virgin chose to go on national radio to attack Sky and suggest, prematurely, that their customers will miss out on Sky basic channels from March 1," Sky said in a statement.

Business mogul Branson began a very public spat with BSkyB chairman Rupert Murdoch and chief executive James Murdoch when he launched Virgin Media with an aggressive flourish two weeks ago. He became the company's biggest shareholder when he merged his Virgin Mobile cellular business with Britain's leading cable television provider NTL last year.

Industry insiders say the satcaster has failed to recognize the strength of Virgin's desire to unseat Sky as the U.K.'s most popular digital television brand.

"Branson is all about fighting messy battles right out in the glare of the public and Sky has been caught under-prepared. Now they are taking steps that actually damage their revenues," said one financial source, who declined to be named.



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