South Africa: The great pay-TV wars of 2008 are turning into a bit of a damp squib

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The Independent Communications Authority of SA (Icasa) is coming under fire for licensing “too many” pay-TV operators, leading e.sat to pull out of the race and, arguably, to the potential failure of Telkom Media. Fact is, though, it didn’t license nearly enough.

The great pay-TV wars of 2008 are turning into a bit of a damp squib. First e.sat, sister company of e.tv, announced it was pulling out of the race to build a pay-TV network. Now Telkom is set to hang up on its investment in Telkom Media — it holds a 66% stake which it wants to reduce significantly and possibly sell entirely — putting the future of the venture in doubt.

If Telkom Media is unable to find a new anchor shareholder, it may have to pull the plug on what had been seen as the biggest potential threat to MultiChoice’s hegemony. The company is now in desperate talks with potential investors.

Telkom says it is pulling out because it has better uses for its money. One wonders if the fixed-line phone operator actually scrutinised the business plan if it’s abandoning the venture before it has even got off the ground. Memo to Telkom management: the media industry does not generate the sort of profit margins that phone monopolies do.

If Telkom Media fails, MultiChoice will have to contend with only two potential rivals: the small, family values-focused Walking on Water Television and a more significant contender, On Digital Media.

Icasa is already coming under fire for licensing so many pay-TV operators. When it scrapped its plans late last year, e.sat blamed Icasa’s decision to license four new players. It said that the market was too small to accommodate more than two players and would instead concentrate on supplying content to MultiChoice.

But those pointing fingers at Icasa are being disingenuous. Instead, the authority should be criticised for trying to regulate a market where regulation is not desirable. Certainly, there should be no artificial limits placed on the number of pay-TV operators. What gives a regulatory bureaucrat — no matter how good they are — the insight to decide accurately how many competitors the market can sustain? No-one knows the size of the market until everyone who wants to compete is given the opportunity to do so.

Placing artificial limits on competition is not conducive to reducing prices — just look at Vodacom and MTN’s high voice tariffs for evidence of this.

And it is not the regulator’s business to protect investors’ money. If investors want to take a risk, that’s their prerogative. If they lose their shirts, tough luck.

In a free, open market, if another operator wants to step in where e.sat, for example, is unwilling to compete, they should be able to do so — without first having to go cap in hand to Icasa for special permission.

If there is abuse of market power, then the competition authorities have shown they have the teeth to deal with the errant operator/s.

Terrestrial broadcasts, on the other hand, do need to be limited and more closely managed. But here the reason for regulation is mainly technical: the lack of radio frequency spectrum places physical limitations on the number of terrestrial radio and TV stations that can be broadcast. There is also a need to ensure that the scarce spectrum is used to license stations that appeal to the widest possible cross section of the population.

But in satellite broadcasting, the restrictions are more financial (the cost of launching new satellites) than technical in nature.

In light of e.sat’s decision to pull out and the potential failure of Telkom Media, Icasa ought urgently to revisit the pay-TV market. This time, it ought to open the market to all-comers and let the market decide the outcome. That, ultimately, would be in the best interests of consumers and the industry.