accc loss in metcash case raises foxtel hopes

  1. 2,369 Posts.
    IT is lucky the Australian Competition & Consumer Commission's chairman Rod Sims has said he is not afraid to take more cases to court because that is exactly where he might end up with Foxtel's $1.9 billion bid for Austar.

    You could almost hear the cheers from Foxtel's head office in the Sydney suburb of North Ryde on Thursday when Federal Court judge Arthur Emmett dismissed almost every aspect of the competition regulator's case against grocery wholesaler Metcash.

    The pay-television group has watched the legal action with great interest. It is deeply upset about the ACCC's statement of issues released late last month that put a red light in front of Foxtel's $1.52-per-share attempt to consolidate the pay-TV sector and was hoping the regulator got knocked over in court.

    This is hardly surprising given Foxtel is desperately keen to consummate a deal that will deliver its shareholders (Telstra, Consolidated Media Holdings and News Limited, publisher of The Australian) more than $60 million in savings at a time when it has suffered sluggish subscriber growth.

    End of sidebar. Return to start of sidebar.
    But the Metcash decision threatens to change the legal rules of engagement for mergers and acquisitions.

    And it gives Foxtel two legitimate reasons to hope that the assumptions contained in the regulator's statement of issues could be overturned should the matter end up before a judge.

    Should the ACCC formally block the bid, a court challenge from Foxtel is far more likely after the Metcash decision.

    The first cause for optimism is contained in paragraph 146 of Justice Emmett's judgment. It concerns how the ACCC should deal with the "counterfactual" -- what would happen if a proposed deal were blocked.

    According to the ACCC's statement of issues, Foxtel (which operates in metropolitan markets) and Austar (the regional provider) would end up moving into each other's markets once fast internet is ubiquitous through the National Broadband Network or some other means.

    Foxtel and Austar disagree. The pay-TV companies have argued at great length in their submissions to the ACCC that it would be economically irrational to do so in a post-NBN world. Both are entrenched in their respective markets and claim it would be prohibitively expensive to mount a marketing campaign to extend their reach.

    The point is that the standard of proof has been raised by the Metcash ruling, which notes that the regulator is "not entitled to succeed" unless "it is more probable than not" that these counterfactual scenarios will actually happen. Justice Emmett says that is not good enough for the regulator to argue that its counterfactuals are "sufficiently credible".

    Most observers believe the ACCC must operate within commercial reality rather than narrow -- or theoretical -- views about markets and competition.

    Foxtel boss Kim Williams seized on the point weeks before the Metcash judgment, describing the statement of issues as "a recital of opinions which do not have recourse to any kind of evidence". Foxtel and Austar do not currently compete in any real sense. The Metcash judgment means the regulator will need to provide compelling evidence to prove this could change.

    The question of narrow or theoretical ways of looking at a market leads to the second reason the pay-TV industry is hopeful the Metcash ruling will help its cause. Justice Emmett says in his judgment that "considerations of commercial reality, not just economic theories, are relevant".

    Commercial reality is important because the ACCC, in its statement of issues, claims that free-to-air "television is not a sufficiently close substitute (to pay-TV) to be considered in the relevant market for the purposes of this competition analysis".

    Most rational observers regard this point as ridiculous. Most analysts credit Seven, Nine and Ten's multi-channels as one reason for soft pay-TV subscription growth.

    But commercial reality does not end there. Former ACCC chairman Graeme Samuel was worried that certain companies could "lock up" exclusive content such as AFL broadcast rights. This is a valid concern but, leaving aside the point that Foxtel and Austar don't compete for these rights, it is important to remember anti-siphoning rules "protect" broadcast rights to key sporting events for the FTAs.

    Any reasonable view about the future of media would suggest that the incentives for competition are likely to grow in a post-NBN world. The lines between digital and broadcast rights will become blurred. This is clearly not the time for the regulator to be applying an old-fashioned and narrow definitions of markets.

 
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