By Helanya Fourie

In August this year, the Independent Communications Authority of South Africa (ICASA) published a Discussion Document on its Inquiry into Subscription Television Broadcasting Services. The purpose of the inquiry is “to determine whether there are competition issues in the sector, which require action to be taken by the Authority through the imposition of pro-competitive conditions on relevant licensees”.

Under the Electronic Communications Act (ECA), ICASA has a mandate to regulate South Africa’s telecommunications and broadcasting sectors in the public’s interest. This includes, amongst other things, to promote competition. Before it can impose pro-competitive licencing conditions, however, it needs to conduct an inquiry to define markets where there is evidence of a lack of competition, and must identify players with significant market power (SMP) to whom pro-competitive licencing conditions should apply.

Of course, South Africa’s competition authorities – the Competition Commission and Competition Tribunal – are also responsible for ensuring effective competition in the pay television sector. A Memorandum of Understanding sets out how ICASA and the Competition Commission should take joint responsibility for competition in telecommunications and broadcasting markets. Theoretically, the respective roles of the sector regulator (ICASA) and the competition authorities are clear: ICASA is responsible for imposing ex ante licencing conditions that respond to market failure, whereas the competition authorities identify and sanction behaviour by firms that are found to have contravened the Competition Act.

Market failure occurs when certain structural features of the market prevent effective competition from taking place, and one example may be where structural or regulatory barriers prevent entry and allow a firm with significant market power to arise. ICASA’s Discussion Document provides a number of examples of barriers to entry at the retail and wholesale levels of the subscription television supply chain. At the retail level, these include brand loyalty, high switching costs for consumers who want to move from one pay television broadcaster to another, the bundling of channels, the need for a licence to provide subscription broadcasting services, marketing costs, and capital to absorb losses until a sufficient number of subscribers have joined the platform. The Document also identifies barriers at the wholesale level, where broadcasters struggle to obtain rights to content due to the scarcity and cost thereof, exacerbated by long term and exclusive contracts between incumbent broadcasters and right holders.

The fact that television broadcasting has characteristics of a two-sided market makes effective competition even more difficult. An incumbent broadcaster is able to maintain its position of dominance through the indirect network effects that exist between subscribers and advertisers: the more subscribers to a platform, the more advertisers are attracted to the platform and the more revenue a broadcaster has available to spend on purchasing rights to content, that attracts even more subscribers. These dynamics make it particularly difficult for new entrants to grow in the market.

The Discussion Document lists a number of possible pro-competitive licencing conditions that have been used in other jurisdictions to deal with market failure in subscription broadcasting. These include shortening the duration of exclusive contracts, the unbundling of rights so that rights are sold separately for different platforms (e.g. subscription television, mobile television and video-on-demand services), rights splitting so that content rights can be sold to more than one broadcaster, and wholesale must-offer conditions that require channels to be made available to other distributors at regulated prices.

The deadline for stakeholder comments on the Discussion Document was 4 December 2017. ICASA will use the input that they receive to publish a Findings Document, and depending on the results may propose draft regulations – a separate process with its own public consultation schedule. Hopefully, the outcome will allow for more effective competition in the pay television market.

Author/s: Helanya Fourie

Nothing in this publication should be construed as advice from any employee of Econex and should be seen as general summaries of developments or principles of interest that may not apply to specific circumstances.