Broadcasting Authority Annual Report 2007-2008

Competition and Cross Media Ownership Concerns

Competition Complaints

During the year under review, the Authority received a competition complaint about the service termination practices adopted by a domestic pay television programme service licensee in 2007 which was alleged to have prevented customers from transferring to another domestic pay television programme service. In October 2008, the BA completed its preliminary enquiry into the case. The complaint was unsubstantiated.

Enforcement of the TVB-TVB Pay Vision's "Firewall" Provision

The domestic free television programme service licence of TVB and the domestic pay television programme service licence of TVB Pay Vision contain a number of special conditions²⁸ as a safeguard to ensure an effective "firewall" between the operations of the two companies to mitigate concerns of unfair competition and media concentration and prevent cross-subsidisation or preferential treatment between the two companies. During the year under review, there was one case about the belated submission of annual audited accounts by TVB Pay Vision to the Authority in contravention of the firewall provisions. Taking into account that the belated submission would unlikely have any adverse impact on the broadcasting market, CTEL, in exercise of her delegated authority under section 11 of the Broadcasting Authority Ordinance, classified the complaint as a minor breach.

Removal of the "Firewall" Provisions in the TVB and TVB Pay Vision Licences

In May 2008, the Authority, on the application of TVB and TVB Pay Vision, approved that the "Firewall" Provisions in the licences of TVB and TVB Pay Vision should cease to have effect pursuant to the relevant licence conditions in their respective licences. These provisions²⁹ were imposed by the CE in C in 2000 to keep the operations of TVB and TVB Pay Vision at arm's length so as to address the competition concern in view of the dominant position of TVB in the local television market and to minimise the impact of TVB exercising control on TVB Pay Vision as a disqualified person³⁰. The Authority duly examined the submissions of the licensees and was satisfied that the TVB group did not exercise control³¹ of TVB Pay Vision or vice versa, within the meaning of the Broadcasting Ordinance (BO), taking into account that TVB group had reduced its voting control in TVB Pay Vision to below 15% and withdrawn from the directorship of TVB Pay Vision. The Authority also noted that the market conditions had changed over the years and removing the restrictions under the Firewall Provisions should enhance competition in the domestic pay television market, which in turn would benefit viewers.

Investigation into Compliance with Cross-media Ownership Provisions under the BO in relation to PCCW Media

In May 2008, the Authority completed an investigation into compliance with the cross-media ownership provisions under the BO (Cap. 562) by entities in connection with PCCW Media, a domestic pay television programme service licensee and Hong Kong Economic Journal Company Limited (HKEJ Co.) arising from HKEJ Co.'s acquisition of the publishing rights of a local newspaper (Investigation).

In the course of the Investigation, the Authority and its legal advisors have thoroughly examined a total of 36 submissions (including joint submissions) provided by 49 entities (companies and individuals), relating to HKEJ Co., PCCW Media including the relevant trusts company in which the shares of PCCW and HKEJ Co. were vested, as well as, the minutes of the relevant Boards and Committees of PCCW and PCCW Media. Based on the information gathered during the Investigation and the legal advice received, the Authority concluded that PCCW Media had not contravened the cross-media ownership restrictions under the BO.

Nonetheless, the Authority considered that additional safeguards should be put in place to ensure that any possible cross-media ownership concerns would not arise in future. Accordingly, the Authority secured relevant undertakings from PCCW and PCCW Media as well as the relevant parties to report to the Authority on any changes to the structural and corporate relationship relating to the operations of PCCW and PCCW Media, and any changes related to the trusts in which the share of PCCW were vested.

²⁸	TVB and TVB Pay Vision are prohibited from including in their services any television programme wholly or substantially produced by the other if the programme has already been included in the service of the other within a period of 12 months. TVB and TVB Pay Vision are also prohibited from supplying or obtaining from each other any exclusive programmes or channels without going through an open bidding process, or on a non-exclusive basis, any programme or channel unless the same is made available to other licensees on no less favourable terms. There are also provisions governing arm's length transactions, undue preference and unfair cross-subsidization between TVB and TVB Pay Vision.

²⁹	The restrictions in the "Firewall" Provisions include: the majority of the directors and principal officers of the two companies shall not overlap, common directors shall refrain from participating in any decision affecting transactions between the two companies, exclusive programme deals between the two companies shall follow an open biding process as approved by the Authority, and that transactions between the two companies shall be in the ordinary course of business only and at arm's length.

³⁰	Under the BO, a television programme service licensee is disqualified from exercising control of another licensee unless otherwise approved by the CE in C. Since TVB and the common directors of TVB and TVB Pay Vision are "disqualified persons" as defined in the BO, they require special approval by the CE in C to exercise control of TVB Pay Vision.

³²	Under the BO, a person exercises control of a company if —
	(i)	he is a director or principal officer of the company;
	(ii)	he is the beneficial owner of more than 15% of the voting shares in the company;
	(III)	he is a voting controller of more than 15% of the voting shares in the company; or
	(iv)	he otherwise has the power, by virtue of any powers conferred by the memorandum or articles of association or other instrument regulating that company or any other company, to ensure that the affairs of the first-mentioned company are conducted in accordance with the wishes of that person.