New Zealand's Commerce Commission is investigating contracts that tie internet service providers to pay TV incumbent SkyTV over claims that the deals block Australian providers from entering the country's IPTV market.
The commission will investigate the contracts for potential breaches of the NZ Commerce Act, which prohibit arrangements likely to lessen competition.
It seeks to determine if the contracts prevent ISPs from providing unmetered access to content from providers other than from SkyTV, decreasing the chance for competing providers like Quickflix to compete equally in the market.
SkyTV dictates the content bundles ISPs take up under wholesale deals, with providers unable to freely differentiate with competitors.
Media commentator Russell Brown said those types of contracts were not allowed in other jurisdictions and called for regulatory change.
Those concerns were exacerbated after a joint venture between SkyTV, which has a 48 percent penetration in New Zealand premises, and key rival Television New Zealand was approved this week by the commission.
The go-ahead for the Igloo low-cost pay TV venture prompted criticisms from opposition communications spokeswoman Clare Curran, who said the decision would only entrench SkyTV's market dominance.
SkyTV chief executive, John Fellet, said he understood the commission's concerns, which focused on complaints made by competitors of the pay TV company and key rival, Television New Zealand.
A spokeswoman for the company dismissed claims that its arrangements were anti-competitive.
"Sky does not ... see the Commerce Commission investigation as a significant imposition and we are confident the relevant agreements, and the way they apply, do not breach the Commerce Act," she said.
A spokesman for Telstra subsidiary TelstraClear, which resells SkyTV content, said the ISP "looks forward to a favourable outcome so that we may freely partner with the global content industry to provide our customers with choice, control and fair value to enjoy the TV, movies and music when and how they want".
TelstraClear chief Alan Freeth has been publicly critical of the payTV broadcaster's market power in the past, with Computerworld NZ reporting in April that TelstraClear would not unmeter traffic from Quickflix.
Freeth said at the time that he was unsure if the SkyTV contract allowed him to do so.
Quickflix managing director, Paddy Buckley, said the provider was pleased with the commission's investigation, illustrating the company's serious issues in attempting to enter the market.
The IPTV market in New Zealand is heating up with the country's equivalent of the NBN, the Ultra Fast Broadband Project, being rolled out to homes.
Brown said SkyTV's market dominance had the potential to suppress the opportunities brought by the network, as it suffocated the local and overseas content market.
SkyTV's current dominance in the pay TV market was likened to Telecom NZ's "bone-crushing" market power during the 90s, which was described at the time as by the regulator.
However, observers remain unsure whether the regulator would impose the changes they say are needed to open up competition in the market.
"We believe these [Commerce Act] sections are too weak to effectively create the necessary change," said Vikram Kumar, chief executive of lobby group Internet NZ.
Telecommunications Users' Association of NZ chief Paul Brislen said the inquiry must take in the entire broadcasting sector, rather than piecemeal regulatory work by the Commerce Commission. He noted there "has to be a reason" why SkyTV is currently the only pay TV player in the New Zealand market.
Last week, Kiwi service provider Maxnet launched its Fyx service, allowing users to bypass geographic restrictions on overseas content streaming sites like Netflix or Hulu.
However, the service, which could potentially sideline SkyTV's dominance in some areas, was withdrawn from the market just days after launch over concerns it did not fully meet legal obligations.
Fellet denied claims that SkyTV had put legal pressure on Fyx's service.
SkyTV's share price dropped eight percent on news of the investigation.