SUBMISSION FROM SKY NETWORK TELEVISION LIMITED
TO
THE MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT
ON
"Regulating Communications for the Future"
Discussion Paper
27 October 2015
| Page 1
1.
INTRODUCTION
1.1
This is a submission by SKY Network Television Limited (SKY) on the Ministry of Business,
Innovation and Employment (MBIE) discussion paper "Regulating Communications for the Future"
(September 2015) (discussion paper).
1.2
Any questions regarding this submission should be directed to:
Cherie Lawrence
General Counsel/Company Secretary
SKY Network Television Limited
PO Box 9059
Newmarket
Auckland 1149
DDI: (09) 979 5648
Email: [email protected].
1.3
SKY is grateful for the opportunity to provide a submission on the discussion paper. SKY can
provide further information if required.
1.4
SKY’s submission is focused on question 37 in the discussion paper: "Do you have any comments
on the potential removal of the 'broadcasting exclusion' in the Telecommunications Act?". SKY also
makes a submission on the statement in Appendix B of the discussion paper that MBIE is "open to
suggestions for improving the processes supporting the TDL, including how to ensure the
application of the levy across the sector is equitable given convergence trends".
2.
SUMMARY
2.1
In summary, SKY submits that it does not support the proposal to partially amend the exclusion of
broadcasting from the Telecommunications Act.
2.2
SKY is reliant on access to broadcasting transmission networks to deliver content to its customers.
SKY does not support the proposal because there are no access or competition concerns with
broadcasting transmission networks to justify the regulatory intervention that the proposal
represents. Further, the discussion paper does not identify an existing or prospective problem that
justifies the proposal as a solution.
2.3
SKY submits that broadcasting transmission networks should continue to be excluded from the
legislation providing for regulation of telecommunication networks.
2.4
SKY also submits that it would not be equitable to apply the TDL to operators of broadcasting
transmission networks because they gain none of the benefits that the TDL funds. It would also be
inefficient and inequitable to apply the TDL to some content providers that deliver content over
telecommunications networks, and unworkable to apply it to all content providers. The TDL is a
business cost that is ultimately passed on to consumers and it is more efficient that it be collected
from consumers by ISPs or telephone service providers.
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2.5
SKY submits that, in the absence of any existing or prospective problem in relation to net neutrality
in the New Zealand market, it is inappropriate to consider any new regulatory intervention.
3.
CONVERGENCE
3.1
This submission is supported by, and should be read together with, SKY's separate submission to
the Exploring Digital Convergence Discussion Paper (the public version is attached). In summary, it
makes the following points in relation to convergence:
(a)
the telecommunications network in New Zealand is not controlled by broadcasters and is still
largely controlled by telecommunications providers;
(b)
convergence in the telecommunications, information technology, media and entertainment
sectors is still at an early stage, and the extent and implications of that convergence, which is
still evolving, are not yet fully understood;
(c)
the acquisition, creation and delivery of content is and remains something different (e.g. from
a functional, business and consumer perspective) to the provision of telecommunication
services (like voice and data), and the provision of telecommunication networks is something
different again. These activities are more separate and different than alike, and the existing
regulatory regime for each activity has a different function and purpose; and
(d)
it is not a given that the existence of "convergence" (however defined) in itself justifies
intervention. Good regulatory practice first requires the identification of a problem, and for
any proposed regulatory intervention to be justified on the basis that it is better, in terms of
cost and benefit, than the status quo.
3.2
The discussion paper states at page 32, that "it is possible that traditional broadcasters will start to
enter telecommunications markets, offering broadband services which support their own content
offerings". If SKY or other broadcasters did sell broadband connections as part of their bundle of
services, they would likely do so by purchasing the UBA service from Chorus (or the equivalent
UFB service from Chorus or an LFC), which is already regulated by the Telecommunications Act
(and they would not be using broadcasting transmission networks to do so).
4.
THE DISCUSSION PAPER: SUMMARY REGARDING THE BROADCASTING EXEMPTION
4.1
Chapter 6 of the discussion paper deals with options for updating the Telecommunications Act. It
includes a proposal to partially amend the exclusion of broadcasting from the Act. It proposes to do
so because:
(a)
the current exemption creates an increasingly arbitrary distinction between broadcasting
and telecommunications infrastructure, given the convergence of that infrastructure; and
(b)
there appears to be little policy justification for retaining the exclusion in its current form,
particularly as services traditionally delivered over broadcasting transmission networks are
increasingly delivered over telecommunications networks.
4.2
Chapter 3 of the discussion paper includes a proposal to create a Communications Act that would
provide for economic regulation across the electronic communications sector. Several of the
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reasons put forward for creating a Communications Act could also be applied to the proposal to
partially amend the exclusion of broadcasting from the Telecommunications Act. In summary, those
reasons are:
(a)
convergence is creating a risk that regulation is contained in "silos" and becoming less
effective (or even counterproductive);
(b)
networks that have natural monopoly characteristics may require economic regulation;
and
(c)
it is desirable to make a regulatory framework that is durable, flexible, and internally
coherent.
4.3
SKY submits that there are no competition concerns with broadcasting transmission networks to
justify regulatory intervention. Further, SKY submits that the discussion paper does not identify an
existing or prospective problem to which amending the exclusion of broadcasting from the Act is the
solution.
5.
SKY'S BROADCASTING TRANSMISSION NETWORK
5.1
The proposal in chapter 6 of the discussion paper is to amend the current exclusion of broadcasting
so that broadcasting transmission networks would come within the scope of the
Telecommunications Act. That proposal would affect the broadcasting transmission networks that
SKY uses to deliver its services to end users.
5.2
SKY licenses or uses (principally under services contracts with third parties) the relevant parts of
the broadcasting transmission networks. They are:
(a)
satellite uplink facilities: These facilities allow SKY to transmit content to satellites;
(b)
satellite transponder capacity: SKY licenses satellite transponder capacity from Optus,
the satellite owner;
(c)
radio spectrum rights: SKY has the rights to radio spectrum used to transmit content from
its satellite uplink facilities to its satellite service provider as well as for the digital terrestrial
broadcast (DTT) of Prime and Igloo's linear services; and
(d)
satellite receiving equipment: The satellite receiving equipment (typically small satellite
reception dishes fixed to roofs and set-top-boxes) used by end users to receive SKY's
transmissions.
5.3
That is the broadcasting transmission network that SKY operates. The discussion paper notes, at
page 12, that convergence is blurring the boundaries between broadcasting, information technology
and telecommunications. It is true that content can be delivered on other networks, but at the
physical level, broadcasting transmission networks remain distinct from other networks.
5.4
SKY also utilises the broadcasting transmission network of Kordia for its free-to-air television
channel Prime and for its Igloo platform.
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6.
NO COMPETITION CONCERNS FOR SKY'S BROADCASTING TRANSMISSION NETWORK
Satellite uplink facilities
6.1
SKY submits there are no competition concerns with access to the satellite uplink facilities that SKY
uses.
6.2
Satellite uplink facilities are not natural monopolies as the cost of building bypass facilities is not
prohibitive. It is expected that other businesses could compete by contracting existing third party
facilities, investing in their own uplink facilities or beginning the process of doing so to create
commercial pressure to negotiate better access to the existing facilities (where there is spare
capacity).
6.3
Other owners of satellite uplink facilities in New Zealand include Kordia and Spark. Kordia and
Spark provide satellite uplink services on a commercial basis, removing the need for competitors to
invest in their own uplink facilities. Kordia provides this service to the Freeview platform.
Satellite transponder capacity
6.4
SKY contracts for satellite transponder capacity on a commercial basis with Optus. SKY does not
own the Optus satellites, and Optus provides satellite transponder capacity on a commercial basis
to other entities, including Freeview. The Optus satellites are in geostationary orbit and are
therefore outside the jurisdiction of New Zealand law.
6.5
SKY is not aware of any suggestion of anti-competitive conduct by Optus.
Radio spectrum licences
6.6
SKY submits that there are also no competition concerns with access to radio spectrum.
6.7
Radio spectrum is regulated by the Radiocommunications Act. SKY purchases radio spectrum in
accordance with the market rules created under that Act. The market allows for participants to
purchase their own radio spectrum license, or to purchase access to radio spectrum as a service
from other participants.
6.8
Each New Zealand broadcaster has its own radio spectrum licences.
Satellite receiving equipment
6.9
SKY submits that there are no competition concerns regarding access to its satellite receiving
equipment.
6.10 While satellite receiving equipment on consumers' premises are owned by SKY, they are not
"locked" to receiving only SKY's transmissions, and can be used to receive other satellite
transmissions (depending on the technical specifications of the equipment).
6.11 Accordingly, satellite dishes do not have natural monopoly characteristics.
6.12 Set-top-boxes can be sourced from multiple suppliers and also do not have natural monopoly
characteristics.
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No demand for access
6.13 It is also widely accepted that new "broadcasters" (that is, businesses that deliver content
traditionally delivered over broadcasting transmission networks) will now transmit content via IPTV.
For example, the Commerce Commission accepted this point in its 2012 Igloo Joint Venture report,
discussed further below. This has been borne out in recent experience. It is therefore not apparent
that there is an increased demand for access to broadcasting transmission networks.
7.
NO COMPETITION CONCERNS FOR BROADCASTING TRANSMISSION NETWORKS IN
GENERAL
7.1
Chapter 1 of the discussion paper identifies 5 regulatory principles that should govern the regulatory
regime for communications that are consistent with the requirements of section 157AA of the
Telecommunications Act. The first principle is that regulation should only be imposed where it is
clearly justified, and that deregulation should be considered where sufficient competition exists.
7.2
Contrary to the first principle, the discussion paper proposes to impose regulation without
justification, and where sufficient competition exists.
7.3
Convergence does not raise regulatory concerns regarding broadcasting transmission networks.
Convergence has increased demand for the use of, and access to, networks that deliver the
internet, ie copper, fibre and mobile (3G and 4G). There is no additional demand for access to and
use of broadcasting transmission networks. Indeed, as more content is delivered via IPTV, demand
for use of, and access to, broadcasting transmission networks may even decrease.
7.4
A number of recent regulatory publications have asserted that there are no competition concerns in
the broadcasting industry, and that there will be no competition concerns in the foreseeable future.
7.5
For instance:
(a)
The Government's convergence green paper states, at page 11, that "the rapid entry of
telecommunications and internet businesses into the distribution market for online video
content has addressed many of the previous concerns resulting from the lack of
competition in the domestic broadcast sector."
(b)
The discussion paper acknowledges, at page 14, that in the context of fixed networks
"competition law is likely to remain sufficient as a backstop to manage any competition
issues emerging at the content and application layers". SKY submits that this is also true
for the physical layer of (fixed) broadcasting transmission networks.
(c)
The discussion paper also states, at page 44, that "in the traditional broadcasting and pay
television sectors, convergence has increased competitive pressure, so we do not see a
need for any sector-specific regulation in this area".
(d)
A key finding of the Commerce Commission's investigation reports into the Igloo joint
venture between SKY and TVNZ (2012)1, and SKY's contracts (2013)2 was that new
"broadcasters" (that is, businesses that deliver content traditionally delivered over
1
Investigation report: the joint venture between Television New Zealand Limited and SKY Network Television Limited, Igloo (16 May
2012).
2
Investigation report on SKY TV contracts (8 October 2013).
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broadcasting transmission networks) will not require access to broadcasting transmission
networks in order to enter the market. At the time of the reports it was accepted that there
was plenty of content available for new competitors to enter the market. SKY submits
that, since the reports, there is more content available for purchase than ever before and a
number of new "broadcasters" have entered the market, including Netflix, Neon,
Coliseum, and Lightbox (amongst others).
7.6
SKY submits that any distinction between amending the exclusion of broadcasting from the
Telecommunications Act, and imposing sector-specific regulation is arbitrary.
7.7
The proposal for sector-specific regulation will impose costs on participants in a number of ways.
Regulatory outcomes will be unclear under the new regime, and this uncertainty will increase costs
for participants. Direct costs will increase because participants will be required to participate in, and
monitor the regulatory regime.
7.8
SKY submits that there would be no benefits to competition from the proposal to impose sectorspecific regulation by amending the exclusion of broadcasting, and that the proposal would impose
significant costs on affected participants.
8.
NO PROBLEM DEFINITION TO JUSTIFY PROPOSAL
8.1
SKY submits that the discussion paper does not identify an existing or prospective problem that
justifies the proposal as a solution.
Policy justification for retaining the status quo
8.2
The discussion paper states that there appears to be little policy justification for retaining the
broadcasting exclusion in its current form, particularly as "broadcasting services are increasingly
consumed as telecommunications services" (page 109).
8.3
The above statement takes as its starting point that change is required and that the status quo must
be justified. SKY submits that this is inconsistent with good regulatory practice that requires any
change be justified on the basis that it is superior in terms of costs and benefits to the status quo.
8.4
SKY considers that the better description is that telecommunications networks are increasingly used
to deliver content that has traditionally been delivered over broadcasting transmission networks. In
particular, new IPTV participants deliver content over telecommunications networks. This is an
important point because it reinforces that broadcasting transmission networks are facing increased
competition from telecommunications networks. Access to telecommunications networks,
particularly access networks, remains a regulatory concern. Broadcasting transmission networks
remain single purpose and have been, and will remain, predictable.
Arbitrary distinction between broadcasting transmission networks and telecommunications networks
8.5
While the distinction between telecommunications networks and broadcasting transmission
networks may be arbitrary in the sense that they can both be used to deliver the same content, the
distinction is not arbitrary when considering competition and network access issues.
8.6
Competition concerns may arise in relation to access to telecommunications networks for delivering
"broadcasting" content, but that is not a concern in respect of broadcasting transmission networks.
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As noted in sections 6 and 7, the Commerce Commission specifically stated in the 2013
investigation report on SKY contracts that new entry into "broadcasting" will be through IPTV
(delivered over telecommunications networks via the internet) and subsequent experience has
confirmed that prediction.
8.7
Also, MBIE has recently observed that there is unlikely to be demand from broadcasters for further
radio spectrum.
8.8
SKY submits that the distinction created by the current regulatory regime is not arbitrary when
considering whether economic regulation is required.
Broadcasting transmission networks do not have natural monopoly characteristics
8.9
The discussion paper explains that fixed-line access networks can be characterised as natural
monopolies. That cannot justify regulatory intervention for broadcasting transmission networks,
which are able to be substituted by telecommunications networks. As stated above,
telecommunications networks are now the preferred method of delivering content for new entrants
(IPTV). This means that content providers are not reliant on broadcasting transmission networks
and those networks do not give rise to the competition concerns associated with natural
monopolies.
Current regulatory regime is not durable, flexible, or internally coherent
8.10 The discussion paper states that regulatory change could increase the durability and flexibility of
regulation of the communications sector to cope with future change. However, there is no
suggestion of future change in relation to broadcasting transmission networks that poses a risk to
current regulatory settings for broadcasting.
8.11 The discussion paper also states that a Communications Act is desirable in part because it would
be more "internally coherent" than the correct regulatory framework. SKY submits that this desire
does not justify regulatory change.
Risk of regulatory regimes becoming "siloed"
8.12 The discussion paper addresses a concern that the regulatory regimes that apply across the
communications sector remain "siloed" while the industry itself is becoming converged. This is
relevant to considering the regulation of content, which the Government is addressing in the
separate Content Regulation in a Converged World Discussion Paper (and where relatively
straightforward solutions have been proposed by the industry). However, it is not relevant to any
form of economic regulation. That is because content can now be delivered over a number of
competing networks, and current content regulation does not reflect that fact. SKY welcomes a
quick resolution to issues identified in the Content Regulation in a Converged World Discussion
Paper, in accordance with industry proposals.
8.13 As discussed above, there should be a failure of general competition law to protect consumers and
access seekers before specific regulatory intervention can be justified. Accordingly, economic
regulation should be limited to those networks where it is needed.
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9.
TELECOMMUNICATIONS DEVELOPMENT LEVY
Summary of the Discussion Paper
9.1
The discussion paper asks “Should local and international businesses that provide content and
services over telecommunications networks be considered part of the industry for purposes such as
the TDL?”, It also states, at page 52: "We think the current arrangements, with the focus on
telecommunications providers – rather than those who deliver their services over the top of the
network at the content and application layers – are appropriate". SKY welcomes and supports that
provisional view, for the reasons set out below.
9.2
The discussion paper goes on to state, at page 52: "However, we are open to views on this matter.
We note that compliance and administration costs should be considered when assessing any
proposed changes". Appendix B, in its analysis of Schedule 3 of the Telecommunications Act, also
states that MBIE is open to suggestions for improving the processes supporting the TDL, including
how to ensure the application of the levy across the sector is equitable given convergence trends.
9.3
SKY explains below how there would be unjustified compliance and administration costs, and it
would not be equitable if the TDL were applied to broadcasting transmission networks or content
providers.
It would not be equitable to apply the TDL to broadcasting transmission networks
9.4
The projects that the TDL may fund (section 90 Telecommunications Act), and do in fact fund, are
as follows:
(a)
The 111 emergency calling service.
(b)
Assisting the supply of telecommunications services to a group of consumers who may
not otherwise receive them - this includes deaf relay services such as CapTel, which
enable deaf persons to receive captioned messages over the telephone network using
special equipment.
(c)
"Non-urban telecommunications infrastructure development", such as the Rural
Broadband Initiative (RBI) and removing mobile network "black spots".
(d)
"TSO charges" – Chorus has not applied to be reimbursed a TSO charge, so the TDL
currently does not fund this. These related to the TSO obligations of Spark to provide free
local calling on residential phone lines in the so-called TSO area, and of Chorus to provide
Spark with the inputs it needs to deliver that service.
9.5
None of those projects affect or benefit broadcasting transmission networks, such as the network
operated by SKY. The projects the TDL funds only add value to telecommunications networks
(fixed-line and mobile) and the services provided over those networks.
9.6
Accordingly, SKY submits it would not be equitable for operators of broadcasting transmission
networks to contribute to the TDL levy.
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The TDL should not apply to content providers
9.7
With the exception of RBI, all of the projects the TDL funds enhance the benefits and value of a
telecommunications network in ways that do not affect large content providers. The 111 emergency
service, deaf relay services and the TSO obligations do not assist delivering content over the
internet. Removing mobile black spots may lead to 3G or 4G mobile data services in new areas,
but this would have a negligible impact on the business model of over-the-top providers.
Accordingly, it would not be equitable for content providers to contribute to funding those projects.
9.8
Only the RBI initiative could be said to benefit businesses that provide content over the internet
(such as IPTV providers), as if more people in remote areas have better internet access, that grows
the potential market for those over-the-top providers. However, that is not a compelling reason to
require content providers to contribute to the RBI component of the TDL.
9.9
It would be inefficient to apply the TDL to content providers that deliver content over
telecommunications networks. The TDL is an additional business cost that is ultimately passed on
to consumers, which Spark aims to make more transparent on its invoices to consumers. It is more
efficient that the levy be collected from consumers by ISPs or telephone service providers, given
that all relevant consumers will by definition be customers of such providers.
9.10 To widen the group of businesses that contribute to the TDL would be inefficient, potentially
unworkable and would create other equity issues.
9.11 It would be inefficient because, based on the current approach to levying the TDL, the Commerce
Commission and additional businesses would have to invest more time and resources into
calculating the relevant "qualified revenue" of each business. That extra cost would not mean any
increase in the levied amount. The complexities of doing so might also become unworkable as
content providers might not be able to present break-downs of their revenue need to calculate the
"qualified revenue".
9.12 It would also create other equity issues, such as if New Zealand-based content providers had to pay
the levy while overseas-based over-the-top providers did not. Levying all content providers would
be unworkable, as it would include all business with websites, for example. An arbitrary distinction
would need to be drawn between content provides that use significant bandwidth, which would also
be unfair. This might include IPTV providers but exclude popular web services such as the Trade
Me group of websites or all .govt.nz websites, which also make a large contribution to internet traffic
in New Zealand.
9.13 Levying business that sell content over the internet, such as pay IPTV providers and iTunes, would
be unfair too. It would exempt free on-demand IPTV services, which use significant bandwidth. It
would also be charging end users twice for the service of delivering the content over the network –
once when they pay the ISP and once when they buy the content. The service they buy from the
content provider is only the content, not the service of receiving it over the telecommunications
networks.
9.14 Once the content providers that use significant bandwidth had been identified, there would be a
further issue of determining how much of the levy each content providers should pay compared with
each other and compared with the ISPs and telephone service providers. This would still be the
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case even if the levy structure were changed to become more efficient and not use the "qualified
revenue" approach, for example if each consumer was charged a fixed levy amount for the
broadband or telephone services they consume.
9.15 As well as being more efficient, collecting the levy from ISPs and telephone service providers would
still be equitable across the sector given convergence trends. It is consumers' consumption of
content that affects traffic on the network. While businesses that provide content over the internet
may be heavy users of telecommunications networks, they only do so to deliver the content to end
users, who are all customers of ISPs. It is more efficient and is equitable that end users pay the
levy cost to their ISP or telephone service provider, rather than also pay it to a range of other
businesses that might have levy obligations.
10.
NO PROBLEM WITH NET NEUTRALITY IN NEW ZEALAND
10.1 SKY agrees with the discussion paper that in New Zealand net neutrality and traffic management
are not a cause for concern for the average end-user. SKY also considers that there is no
compelling evidence to suggest that net neutrality and traffic management will be a cause for
concern in the future.
10.2 It is not clear that net neutrality issues that have arisen in other jurisdictions, with vertically
integrated network owners, could arise in New Zealand. If they did arise here there is also no
reason to be concerned that our general competition law or the existing Telecommunications Act
would not be adequate to address any such issues. SKY expects the Commerce Commission
would regulate the delivery speeds and potential 'throttling' on access networks (Chorus's copper
network and Chorus and the LFCs' UFB networks) when setting the access and price regulation. At
the retail level, ISPs are prevented from colluding to regulate the delivery speeds (unless authorised
by the Commission) and being the first ISP to demote certain traffic would likely have commercial
risks.
10.3 SKY submits that, in the absence of any existing or prospective problem in relation to net neutrality,
it is inappropriate to consider any new regulatory intervention.
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