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Media Rules & Rulers

Market opening in Sweden

EU competition law is clear. Whether telecom or broadcast distribution, monopolies are forbidden, particularly State monopolies. One by one, they are being unraveled and it’s an unraveling experience.

monopolyCompetition Commissioner Neeley Kroes referred Sweden to the European Court of Justice (ECJ) 20 months ago for failing to end the mostly State-owned monopoly on broadcast distribution. Boxer TV Access, a subsidiary of State-owned broadcast distribution provider Teracom, was granted exclusivity as the digital terrestrial television (DTT) ‘gatekeeper’. ECJ proceedings have now been withdrawn (June 5) after Sweden abandoned provisions of its media law establishing a monopoly in DTT encryption and distribution. Other providers may now apply to provide these DTT services.

The European Commission directed all EU Member States to open their broadcast transmission services markets by July 2003. There were laggards. Sweden adopted monopoly-preserving rules on DTT distribution in 2003.

Boxer TV Access was formed in 1999 to provide DTT access; provide set-top boxes. Venture capital firm 3i took a 30% stake in Boxer TV Access in April 2005 when pension fund Skandia sold its holdings in private companies. 3i’s statement at the time of the transaction speaks glowingly of Boxer’s growth potential and not once mentions the advantage of monopoly. Boxer had a 40% market share in Sweden and £200 million revenue in 2007.

Teracom, wholly owned by the Swedish State, was created in 1992 as a spin-off of broadcast transmission services from Televerket Swedish Telecommunications Administration.

Teracom asked the Swedish government for a bailout in 2001, which was refused. The government told Teracom to get lean, mean and find money elsewhere, though it granted a small loan guarantee to prevent Teracom’s eminent bankruptcy. The DTT project was central to the government’s displeasure with Teracom. When the plea for State aid was refused, Teracom merged DTT platform provider Senda with Boxer, under the Boxer name, and took on Skandia as a financial partner.

About the same time (2001) the Swedish government denied Teracom a bailout, satellite TV operators Nordic Satellite AB (NSAB) and Viacom/MTG and complained to EC DG Competition claiming Teracom received above market value distribution fees from public broadcaster SVT. NSAB is majority owned by satellite provider SES Astra and State-owned Swedish Space Corporation. NSAB changed its name to SES Sirius in 2005. Commissioner Kroes’ office began a formal investigation in 2004 and ruled (December 2006) that State aid rules had not been violated but that curious monopoly had to end.

“The Commission is satisfied that Sweden did not grant Teracom state aid for the switch-over to digital terrestrial television,” said the DG Competition statement. “However, we are actively pursuing Sweden for failing to abolish the monopoly enjoyed by a company owned by Teracom to provide access control services and have referred Sweden to the EU’s Court of Justice."

Sweden was the first European country to switch off analogue TV. And Sweden was among the first countries – along with the UK and Spain – to launch DTT. Those early UK (ITV Digital) and Spanish (Quiero TV) DTT launches – in the late 1990’s - failed miserably. Boxer TV Access, according to company information, was designed like ITV Digital.

Boxer recently won Danish rights to operate a DTT platform set to launch late in 2009. It joined the Communicorp/BT bid for the Irish DTT license. In a presentation to the Broadcasting Council of Ireland (BCI) (May 18) Communicorp CEO Lucy Gaffney blasted the other bidders – RTE and a consortium including TV3 - saying it was ”… inappropriate for any broadcaster to be involved in platform management.” Denmark’s public broadcaster Danmarks Radio (DR) operates one DTT multiplex. Ireland’s TG4 attempted to launch a DTT service in 1999 but it never got off the ground and the license was withdrawn.

The compelling rationale favoring broadcast transmission and distribution monopolies is simple: cost. Prospective new entrants face cost structures defined by incumbent, often State-owned, providers who often benefit from cozy relationships with State-funded broadcasters as well as national regulators. The effect on new digital services is devastating.

A major UK broadcaster – GCap Media – announced a pull-back from digital radio (DAB) offerings because of the high fees charged by the transmission service provider, a new company which it partly owns. That pull-back may have been pulled off the table when GCap merged with another company but the root problem remains. New services – be they digital TV or digital radio – will continue to struggle financially until rule makers – national and at the European level -  take a harder look.

 

 


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