The communications regulator Ofcom has indicated that Sky could still launch its proposed Picnic terrestrial pay-television platform in the United Kingdom, subject to offering its sport and movie channels on a regulated wholesale basis. It has stopped short of referring Sky to the Competition Commission as rival operators had requested, but it remains a veiled threat. Sky will meanwhile be forced to sell at least some of its stake in commercial broadcaster ITV, probably at a considerable loss.

The regulator says that markets in which competition is weak do not deliver the best outcomes for consumers. The irony is that Britain has one of the most competitive television markets in the world. Consumers have considerable choice, with a range of free and subscription services.

They even have a choice of where to get premium channels from Sky. Subscribers can get Sky Sports or Sky Movies channels on either the Sky satellite platform or Virgin Media cable television, or indeed on Tiscali broadband television.

The real issue is the wholesale prices that are charged and consequently the retail prices passed on to consumers.

Having opened an investigation into pay television in early 2007, following complaints from rival operators, Ofcom has now characteristically launched a further consultation on the matter.

Sky has meanwhile apparently abandoned its Picnic plans which would have created a terrestrial pay-television platform, arguably offering consumers further choice, at least in terms of the mode of reception.

Ofcom now says that it could consent to the Picnic proposal, but only subject to Sky offering its premium sports and movie channels on a suitable wholesale basis, and using a form of conditional access that would allow other operators to resell the services.

Sky will also have to sell at least some of its stake in the commercial broadcaster ITV following a separate ruling by Competition Commission.

It may prove costly for Sky, seeing the value of its stake fall from £940 million to around £300 million, but strategically it served to limit competition from cable and it has had the effect of weakening ITV.

ITV has lost around 60% of its value, while the share price of Virgin Media, listed in the United States on the NASDAQ, has fallen by over 70% over the last year.

While Ofcom has consulted and considered what to do about pay television, the value of the main commercial broadcaster in the country has virtually collapsed and it is planning to shed nearly one in five staff in an attempt to cut costs.

Market share
The latest figures from Ofcom seem to show a highly competitive market for digital television in the United Kingdom, mainly contested between subscription services on satellite, with 34% of the homes, and cable with 12.4%, while pay-television terrestrial and broadband services currently take only 1.3% and 0.3% respectively.

Free-to-view digital terrestrial television serves 36.7% of homes, while free-to-view satellite represents a further 3.3%, taking the total number of homes receiving free digital television on their primary set to 40%, while over 65% of homes now use free digital terrestrial television.

Freesat, a free satellite service promoted by the BBC and ITV, seems to have got off to a reasonable start, selling 100,000 units since its launch in May, while Sky added 92,000 subscribers in the last quarter. That compares to around 200,000 new Freeview terrestrial homes in the same period. Around 800,000 homes now have free satellite television, including those that have churned out of subscription services.

In many respects this looks like a success story for digital television in Britain, and the highly consultative economic approach adopted by Ofcom.

However, the future of public service broadcasting beyond the BBC and a tradition of fifty years of television remain in the balance as ITV struggles to adjust to the more competitive environment of multichannel broadcasting.