Australian pay TV rivals join forces


The deal is good news for Telstra CEO Ziggy Switkowski, due to unveil the telco's half-year results on Wednesday

Staff and wires

SYDNEY, Australia -- Australia's pay television industry is to be transformed after the two biggest operators, Foxtel and Optus, agreed to resell content and capacity on their rival networks.

The deal heralds a long-awaited rationalization of the industry, which is dominated by Foxtel with 784,000 subscribers. Optus has 260,000 subscribers.

A third entrant, Austar, has about 400,000 customers, mainly outside the metropolitan areas.

In the past eight years, competitors in the Australian industry are estimated to have lost up to $3 billion as they seek to sell services to about 5 million viewers.

But Foxtel now looks set to entrench its control of the market by buying off its main competitor and assuming $300 million in commitments that Optus would pay over the next eight years to Hollywood studios.

The deal, announced Tuesday, is conditional on regulatory approval from the Australian Competition and Consumer Commission, because Foxtel effectively becomes a wholesale supplier of Hollywood movies and popular sports programs.

Foxtel and Optus must also convince U.S. studios such as Disney, Sony, Warner, MGM, 20th Century Fox, Paramount and Universal that a renegotiation of their program sales packages is desirable.

Owned by SingTel

Under the proposal, Foxtel would resell its subscription channels on rival Optus Television, which is owned by Singapore Telecommunications, and assume Optus' movie and other programming costs.

Optus, Australia's second ranked telco, would lease satellite capacity to Foxtel, which is 50 percent owned by the Australian telco giant Telstra.

Telstra said the satellite deal would enable Foxtel to offer digital services within 18 months.

Telstra's partners in Foxtel, with 25 percent each, are Australia's two biggest media groups, Rupert Murdoch's News Corp and Kerry Packer's Publishing and Broadcasting Ltd. Foxtel was formed in January 1995.

Telstra will also bundle Foxtel pay television with its telephone and Internet services to enable it to compete with a similar multi-product offering by Optus.

The deal is seen as a welcome breakthrough for Telstra CEO Ziggy Switkowski, who will announce the telco's half-year results Wednesday.

Telecommunications analyst Paul Budde said in a commentary Wednesday that Australia now had the pay-TV model it should have had eight years ago.

He said it was only the first of a number of rationalization moves, with the next expected to be a merger between Optus and Austar.

Budde said he doubted the Foxtel-Optus deal would win approval from the ACCC without an open-access agreement for third-party content.

Regulatory hurdles

Other analysts warn the deal faces regulatory hurdles.

"There had to be some sort of consolidation in the pay television sector ... the biggest risk is the Australian Competition and Consumer Commission (ACCC), whether they will allow it," Tim Smeallie, telecoms analyst at UBS Warburg, told Reuters.

The ACCC said in a statement it would closely investigate the proposed deal, although Optus executives who met ACCC chairman Allan Fels early Tuesday said they were optimistic of approval.

Telstra shares rose 2 percent after the deals were announced Tuesday, but the stock slipped back to close just one cent or 0.2 percent up at A$5.34 after the ACCC's comment.

SingTel's Australian shares closed a cent stronger at A$1.75 in a firmer overall market.

The Foxtel-Optus content deal takes effect from November 2002 until 2010. Optus has an option to review the deal in 2004.

Digital launch

Telstra said it expected the proposal to lease Optus' satellite capacity from 2003 would allow Foxtel to launch digital services by mid-2003.

"It sets Foxtel up for a digital launch by the middle of next year," Telstra executive director media Jerry Sutton told Reuters.

Foxtel has indicated it would cost $250 million to digitise its pay-TV service.

Australia's third pay-TV operator Austar said it would continue talks with Optus on a possible partnership.