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Australian regulator approves pay TV alliance
Geoff Hiscock
SYDNEY, Australia (CNN) -- Australia's competition watchdog has approved a $700 million program-sharing deal between the dominant pay TV group Foxtel and smaller rival SingTel Optus. The surprise decision on Wednesday by the Australia Competition and Consumer Commission (ACCC) means the two groups can cut costs in the Australian market, where they have struggled to make a return on investments of billions of dollars since the mid-1990s. Much of those costs stem from the prices they pay the Hollywood studios for movies and other programs. The ACCC's move is seen as a win for telecom giant Telstra and its partners in the front-running Foxtel operation, media groups News Corp and Publishing & Broadcasting Ltd (PBL). Telstra owns 50 percent of Foxtel. News, controlled by Rupert Murdoch, and PBL, the flagship of fellow billionaire Kerry Packer, each hold a 25 percent stake. In a statement to the Australian Stock Exchange welcoming the ACCC decision, Telstra CEO Dr Ziggy Switkowski called it a "victory for commonsense and consumers". Foxtel, with about 800,000 subscribers, has more than half the Australian market of 1.5 million subscribers but still loses money. Optus, controlled by Singapore Telecommunications, has 270,000 subscribers or about 16 percent and Austar United Communications, which serves mainly regional areas, has about 420,000. Optus, which loses an estimated $150 million a year on its pay TV operations, had threatened to quit the Australian industry if its proposed alliance with Foxtel was rejected. Optsu CEO Chris Anderson said the new arrangement with Foxtel would mean an extra Aust. $30 million ($17 million) a year in earnings before interest, tax, depreciation and amortization for the company, while leasing extra capacity to Foxtel on the Optus C1 satellite would generate another A$40 million ($22 million) in revenue. Shares riseShares in the four main players all rose on the Australian Stock Exchange on a day the broader market retreated slightly. In afternoon trade, Telstra is up 1.1 percent to A$4.59, News Corp is up 1.1 percent to A$11.21, PBL is 2.2 percent higher at A$8.31 and SingTel is 2.9 percent ahead at A$1.42. Shares in the much-smaller Austar, which has had a troubled run this year, are up 17 percent to A$0.17. In August Austar, which is controlled by U.S. company United GlobalCom Inc., reported a first half loss of A$94 million. ACCC chairman Profesor Allan Fels said Wednesday the regulator did not intend to oppose the content-sharing arrangement. This is a turnaround from the regulator's initial finding in June that the proposal was anti-competitive. Since then the ACCC has been taking soundings from the pay TV industry. Fels said most of the submissions it received believed the industry needed rationalization because of high content costs and difficulty accessing quality content. Fels said the court-enforceable undertakings proposed by Foxtel, Optus and Austar addressed the ACCC's concern about the potential anti-competitive effects. The undertakings provide access to programs for pay TV operators, broader choice for consumers and access to Telstra's cable network and Foxtel's set-top boxes. More program choice"Pay TV operators will now have access to a more comprehensive range of programming, enabling them to offer pay TV consumers a broader range of programs, including popular movies and sports," he said. "Most of the concerns raised about the arrangements related to the ability of Foxtel to prevent meaningful competition in the pay TV industry by blocking competitors from using either its programming or its cable network," he said. To address concerns about access to programming, Foxtel and Austar have agreed to allow rival operators, such as TransACT and Neighbourhood Cable, to purchase their pay TV content on fair and commercial terms. "This also will facilitate new investment in broadband networks", Fels said. The concerns about access to infrastructure, such as Telstra's cable network and Foxtel's set-top boxes, have been addressed by Foxtel and Telstra's undertakings to allow rival pay TV operators to use their analogue and proposed digital networks to provide competing pay TV services to consumers. Digital commitmentFoxtel and Telstra have given a conditional commitment to digitize the pay TV network at a cost of about $300 million, subject to legislation. Fels said digitization of the network would be a positive outcome for consumers as it would result in more channels for content suppliers to distribute their product and new services such as interactive television. Fels said the ACCC remained concerned about the level of vertical integration in the pay TV industry, particularly given Telstra's position as a major shareholder in Foxtel.
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