The Sky’s the limit

Regulation sorely needed

One paradox of the free market is that it needs to be regulated to remain free.

Left to its own devices, the market will quickly generate one big fish that eats all the smaller fry in the pond, and that skews the market to suit itself and its shareholders. Nothing surprising about that. Yet it explains why even the United States has recognised the need for intervention – and indicates why, as long ago as 1910, the United States Supreme Court broke the stranglehold that John D Rockefeller and his Standard Oil Company had achieved on the American energy market.

In the 1970s, American regulators intervened again to force the country’s main telecommunications company to break itself up into several small, competing companies.

New Zealand has been slow to follow suit.

In a small country such as ours, the risk of one company achieving a dominant position is high, especially because the big players in key areas of the economy are former state entities – such as Telecom – that began life as state monopolies.

In the 1990s, for example, the prevailing climate of ‘‘light-handed’’ regulation allowed Telecom to virtually run riot.

Telecom used its dominance to delay the advent of effective competition, stifled the entry of new technology and hiked costs to customers and firms alike.

As a result, New Zealand – whose distance from global markets has always made modern telecommunications a strategic necessity – still lags behind the rest of the developed world.

Last week, similar concerns were being raised about the dominant position enjoyed by Sky TV, and calls were being made for the Commerce Commission to play a more effective watchdog role with respect to the pay-tv operator.

The trigger for the latest round of concern? Sky is imposing major costs on sports bodies, in return for coverage of their events.

In recent years, Sky has begun to charge national sports organisations to broadcast their events, and the fees have reportedly reached up to $200,000 per event in some cases.

Ultimately, it is ratepayers and taxpayers who have to pick up the tab, via the money they pour into the sports and tourism bodies concerned.

In other countries, the existence of effective competition means that television firms pay the sports bodies – and the winning television company can then leverage advertising and pay-tv subscriptions from its sports content.

Not here. When you’re television’s main player – as Sky increasingly is – you can screw the scrum in any way you choose, especially if the free market watchdog is snoozing in its kennel.

True, the Commerce Commission has ( belatedly) said it will be investigating Sky’s deals with internet service providers for any signs of monopoly behaviour.

Yet almost simultaneously, the commission chose to give the ‘‘all clear’’ to Sky’s recent pay-tv joint venture with Television New Zealand, which will remove a further tier of competition from the television market.

For now, sports organisations wanting television coverage have to deal with Sky, on very much the terms that the pay-tv operator puts on the table.

Sky is in the happy position of enjoying three related income streams: from the sports bodies, from ads, and from subscriptions.

Long will it continue to prosper, so long as ‘‘regulation’’ remains a dirty word in New Zealand’s political vocabulary.