In 2007, BT, Virgin, Top up TV and Setanta complained about Sky’s dominance within the pay-TV industry. Sky, who have an estimated 85% share of the market were investigated by Ofcom and a decision has now been made. Sky will be forced to reduce the price it charges to other Broadcasters for showing premium sport channels. The wholesale price of Sky Sports 1 and 2 (two of my favourite channels!!) will each be reduced by just over 23% to £10.63 a month each. The idea is that this decision will benefit consumers by increasing choice. However, Sky argues that it will be to the ‘detriment of consumers’ as incentives to invest and take risks will be blunted.
Furthermore, there are also concerns that it will mean less money going into sport. Rugby, football, tennis etc benefit from some very lucrative TV rights deals and if Sky is forced to reduce prices (it is appealing the decision), then the value of these deals is likely to decline, which may lead to less investment in grass-routes participation.
Whilst progress has been made within this area, critics argue that Ofcom have not gone far enough and should have extended their decision to more sport channels (not just Sky Sports 1 and 2) and even to the premium movie channels. This would again increase consumer choice and provide more people with access to premium TV. This would work alongside more innovation within the pay-TV industry, which has seen Sky being given permission to offer pay-TV services on freeview, which will open up pay-TV to millions more consumers. Whilst no action has been taken regarding Sky’s dominance of premium movie channels, this issue has been referred to the Competition Commission. Is Sky’s dominance over sporting events about to come to an end?
Articles
BSkyB ordered to cut sports channels rates Reuters, Kate Holton (31/3/10)
Sky forced to cut price of sports channels Telegraph (31/3/10)
Consumers are big winners in BSkyB ruling Financial Times, Ben Fenton and Andrew Parker (31/3/10)
BSkyB should shake hands and move on Financial Times (31/3/10)
Sky told to cut wholesale prices by regulator Ofcom BBC News (31/3/10)
Ofcom v Sky BBC News blogs: Peston’s Picks, Robert Peston (31/3/10)
BSkyB ‘restricting competition’ BBC Today Programme (31/3/10)
Ofcom orders Sky Sports price cut Guardian, Mark Sweney (31/3/10)
Sky ruling: Culture Secretary challenges Tories to back Ofcom Guardian, Mark Sweney (31/3/10)
Sky forced to cut the price for top sports events: Q and A Telegraph, Rupert Neate (31/3/10)
New ruling lets fans see Premier League on TV for just £15 a month London Evening Standard, Jonathan Prynn (31/3/10)
Regulator sets the fuse for shake-up of pay-TV Independent, Nick Clark (31/3/10)
Ofcom report
Delivering consumer benefits in Pay TV Ofcom Press Release (31/3/10)
Pay TV Statement Overview (31/3/10)
Pay TV Statement Summary (pdf file) (31/3/10)
Pay TV Statement Full document (pdf file) (31/3/10)
Questions
- To what extent will Ofcom’s decision to force Sky to reduce prices lead to an increase in consumer choice? Why is consumer choice good?
- Why has Sky been able to charge such high prices in the past, in particular for sports channels?
- According to the BBC News article, Sky shares were the biggest risers on the FTSE by midday on the day of the announcement. Why do you think this was the case?
- Would a similar decision on premium movie channels significantly increase consumer choice?
- Into which market structure does the Premium TV industry best fit? Consider the characteristics of the pay-TV industry. Into which market structure does it best fit?
- Why may Ofcom’s decision lead to less investment in sport at the grass roots?
The Labour government’s investment in education has been widely publicised since its rise to power in 1997 and there has been a significant increase in funding to match its ‘50% participation in higher education’ target. However, at the university level, this looks set to change. More than 100 universities face a drop in their government grants as a consequence of £450 million worth of cuts. 69 universities face cuts in cash terms and another 37 have rises below 2 per cent. Furthermore, increased funding is now going to those departments where research is of the highest quality, which means that whilst some universities will not see a cut in funding, they will see a reallocation of their funds.
Sir Alan Langlands, Chief Executive of Hefce, said: “These are very modest reductions. I think it is quite likely that universities will be able to cope with these without in any way undermining the student experience.” Despite this reassurance, there are concerns that, with these spending cuts and growing student numbers, class sizes will have to increase, the quality of the education may fall and ultimately, it may mean a reduction in the number of places offered. The Conservatives have estimated that 275,000 students will miss out on a place. UCAS applications have grown by 23% – or 106,389 – so far this year, but the number of places has been reduced by 6000. This policy of cutting places is clearly contrary to the government’s target of 50% participation.
With the average degree costing students over £9000, it is hardly surprising that students are unhappy with these spending cuts and the fact that it could lead to a lower quality education. With the possibility of rising fees (in particular, as advocated by Lord Patten, who has called for the abolition of a “preposterous” £3,200 cap on student tuition fees) and a lower quality degree, this means that students could end up paying a very high price for a university education.
Articles
Universities fear research funding cuts Financial Times (18/3/10)
More students but who will pay? BBC News, Sean Coughlan (18/3/10)
University cuts announced as recession bites Reuters (18/3/10)
How about $200,000 dollars for a degree? BBC News, Sean Coughlan (18/3/10)
Liberate our universities Telegraph (17/3/10)
Universities should set own fees, say Oxford Chancellor Patten Independent, Richard Garner (17/3/10)
University budgets to be slashed by up to 14% Guardian, Jessica Shepherd (18/3/10)
Universities face cuts as Hefce deals with first funding drop in years RSC, Chemistry World (17/3/10)
University cuts spell campus turmoil BBC News, Hannah Richardson (18/3/10)
Universities told of funding cuts Press Association (18/3/10)
100 universities suffer as government announces £450 million of cuts Times Online, Greg Hurst (18/3/10)
Data
HEFCE announces funding of £7.3 billion for universities and colleges in England HEFCE News (18/3/10)
Questions
- Why is there justification for government intervention in higher education? Think about the issues of efficiency and equity and why the market for education fails.
- What are the arguments (a) for and (b) against allowing universities to set their own tuition fees?
- Why is the government planning these substantial cuts to university funding, when it is still trying to increase the number of students getting places at university?
- Is the ‘50% participation in higher education’ a good policy?
- What are the benefits of education? Think about those accruing to the individual and those gained by society. Can you use this to explain why the government has role in intervening in the market for higher education?
- Is it right that more spending should go to those departments with higher quality research? What are the arguments for and against this policy?
- What are the costs to a student of a university education and how will they change with funding cuts and possibly higher tuition fees?
Transport issues in the UK are always newsworthy topics, whether it is train delays, cancelled flights, the quality and frequency of service or damage to the environment. Here’s another one that’s been around for some time – high-speed rail-links. Countries such as France and Germany have had high-speed rail links for years, but the UK has lagged behind. Could this be about to change?
The proposal is for a £30bn 250mph high-speed rail link between London and Birmingham, with the possibility of a future extension to Northern England and Scotland. This idea has been on the cards for some years and there remains political disagreement about the routes, the funding and the environmental impact. Undoubtedly, such a rail-link would provide significant benefits: opening up job opportunities to more people; reducing the time taken to commute and hence reducing the opportunity cost of living further away from work. It could also affect house prices. Despite the economic advantages of such a development, there are also countless problems, not least to those who would be forced to leave their homes.
People in the surrounding areas would suffer from noise pollution and their views of the countryside would be changed to a view of a train line, with trains appearing several times an hour at peak times and travelling at about 250mph. Furthermore, those who will be the most adversely affected are unlikely to reap the benefits. Perhaps the residents of the Chilterns would be appeased if they were to benefit from a quicker journey to work, but the rail-link will not stop in their village. In fact, it’s unlikely that they would ever need to use it. There are significant external costs to both the residents in the affected areas and to the environment and these must be considered alongside the potential benefits to individuals, firms and the economy. Given the much needed cuts in public spending and the cost of such an investment, it will be interesting to see how this story develops over the next 10 years.
Podcasts and videos
£30bn high-speed rail plans unveiled Guardian, Jon Dennis (12/3/10)
Can we afford a ticket on new London-Birmingham rail line? Daily Politics (11/3/10)
All aboard? Parties disagree over high-speed rail route BBC Newsnight (11/3/10)
Articles
The opportunities and challenges of high speed rail BBC News, David Miller (11/3/10)
Beauty of Chilterns may be put at risk by fast rail link, say critics Guardian, Peter Walker (11/3/10)
High-speed rail is the right investment for Britain’s future Independent (12/3/10)
Hundreds of homes will go for new high-speed rail line Telegraph, David Milward (12/3/10)
Questions
- Make a list of the private costs and benefits of a high-speed rail link.
- Now, think about the external costs and benefits. Try using this to conduct a Cost-Benefit Analysis. Think about the likelihood of each cost/benefit arising and when it will arise. What discount factor will you use?
- There are likely to be various external costs to the residents of the Chilterns. Illustrate this concept on a diagram. Why does this represent a market failure?
- How would you propose compensating the residents of the Chilterns? Are there any problems with your proposal?
- Will such a rail link benefit everyone? How are the concepts of Pareto efficiency and opportunity cost relevant here?
- To what extent would this rail link solve the transport problems we face in the UK. Think about the impact on congestion.
For many people, internet access is something we take for granted and if you can’t afford to connect, you might be seen to be in relative poverty. Whilst you can afford food, clothes, housing etc, other goods and services are increasingly being seen as necessities. Everyone should be able to afford a mobile phone, a television, the internet. These are all factors that contribute towards a feeling of social inclusion, which is something the government has promoted since its election in 1997.
Although internet access is the norm for most people, in the UK our internet speeds are actually significantly slower than those in other industrialised countries. All this could be about to change, with Labour’s proposal for a 50p monthly tax on households’ landlines to fund super-fast broadband across the country. However, this plan has been condemned by some influential MPs, who argue that the tax is regressive.
“We believe that a 50 pence levy placed on fixed telecommunication lines is an ill-directed charge. It will place a disproportionate cost on a majority who will not, or are unable to, reap the benefits of that charge.”
More important, they argue, is to make sure that everyone has internet access, rather than that everyone has fast access, which is not needed at the moment. When there is a demand for high-speed access from the masses, the market will provide it. However, the government argues that high-speed access is crucial to our economic growth, as it allows access to huge social, economic and health benefits. On the other hand, could such a tax reduce growth, by limiting technological innovation? The Conservatives have promised that if elected, they will scrap this broadband levy and instead aim to fund high-speed internet access by providing ‘BT’s rivals with regulatory incentives to roll out new telecoms networks’. This highly contentious issue is discussed in the articles below.
The Broadband tax: dead in the water? BBC News, Rory Cellan-Jones (23/2/10)
Broadband tax plan condemned Press Association (23/2/10)
Social tariff users need to be made aware of broadband tax exemption Broadband Expert (17/2/10)
Broadband tax could dissuade technology innovation Broadband (27/1/10)
Tories pledge rise in broadband speed Financial Times, Andrew Parker and Ben Fenton (9/2/10)
Fast broadband: an election issue? BBC News, Rory Cellan-Jones (3/2/10)
Questions
- What will be the effect of a tax on landlines? Illustrate this on a diagram and think about who will be affected. What type of tax does it represent: direct, indirect, specific, ad-valorem, etc?
- Is the tax fair? Why is it argued to be regressive?
- How will the Conservative party’s aim to provide regulatory incentives to BT’s rivals allow them to provide high-speed internet access? Is their solution better than Labour’s proposal?
- Why might the provision of high-speed internet access (a) stimulate economic growth and (b) constrain economic growth?
- Use a growth model to illustrate the importance of technological progress in achieving high levels of economic growth.
- How will a tax affect households? Consider the impact on income and consumption and hence on aggregate demand.
The government has been under a lot of pressure to tackle the culture of binge drinking. Figures for 2006/7 show that the cost to the NHS of binge drinking was £2.7 billion per year. In response, MPs are calling for a change in government policy towards the alcohol industry, arguing that at present the drinks industry has more control over policy than health experts. So what can be done?
In a report published in early January 2010, the House of Commons Health Select Committee proposed a minimum price per unit of alcohol, tighter controls on advertising and mandatory labelling. A minimum price, the Committee argued, would reduce demand by heavy drinkers who are looking for cheap alcohol. At present, many supermarkets have promotions that involve selling cider and beer at below cost, allowing people to ‘pre-load’ cheaply at home before going out drinking. The report suggested that a minimum price of alcohol of 50p per unit would save more than 3000 lives per year and a minimum price of 40p per unit would save 1100 lives.
Dr. Richard Taylor, an independent MP and member of the Commons Health Select Committee, said:
“The evidence we took showed that minimum pricing was the most effective way forward and at the moment you can sometimes buy beer cheaper than water. Our message is that the price would be put up but only by a little for moderate drinkers. Surely that is a sacrifice to pay for the good health of young people.”
However, those opposed to setting a minimum price per unit of alcohol argue that it would be unfair on moderate drinkers, that it wouldn’t work and that it could even be illegal. Instead, they argue that that government intervention needs to be smarter. It should not target everyone, but solely those groups consuming the most alcohol. The British Beer and Pub Association suggests that 10% of the population consumes 44% of all alcohol.
It appears that the government won’t be following Scotland’s minimum price on alcohol, but will instead impose bans on all-you-can-drink deals and introduce compulsory identity checks. However, supermarket deals don’t appear to have been targeted. Successive governments have failed to tackle this problem sufficiently, but with an election approaching, will this be a proposal that is promoted?
Raise alcohol price to save lives, MPs argue Telegraph, Rebecca Smith (8/1/10)
Commons committee backs minimum alcohol pricing BBC News (8/1/10)
Campagain to tackle cut price alchol The Arran Banner (8/1/10)
Wyre Forest MP calls for alcohol minimum pricing The Shuttle (8/1/10)
Should 50p be minimum price for a unit of alcohol? Have your say BBC News (8/1/10)
BBPA: minimum price would be ineffective Morning Advertiser, Ewan Turney (8/1/10)
Cost of binge drinking doubles for the NHS rises to £2.7 billion Mirror, James Lyons (2/1/10)
Bring in 50p minimum price for alcohol, MPs urge Guardian, Toby Helm (3/1/10)
All-you-can-drink pub offers facing ban BBC News (19/1/10)
Too much of the hard stuff: what alcohol costs the NHS THE NHS Confederation, Issue 193 January 2010
Minimum pricing for alcohol essential, says Health Committee Marketing Week, David Burrows (8/1/10)
Minimum alcohol pricing ‘will affect the poor’ BBC News, Kevin Barron and Gavin Partington debate (8/1/10)
Questions
- How is the equilibrium price of alcohol determined?
- Illustrate and explain the effects of the imposition of a minimum price.
- To what extent is a minimum price likely to be effective? How is elasticity likely to play a role in the effectiveness of such a policy?
- Why could the introduction of a minimum price on alcohol be illegal and contravene European competition law?
- What are the arguments for and against a minimum price on alcohol? Explain how and why some people will gain and others will lose.
- How would a minimum price on alcohol affect government spending? Would more investment in prevention lead to a lower cost to the NHS? Explain your answer.
- Why might bans on all-you-can-drink deals be ineffective?