SKY, Vodafone merger a no-go

SKY TV and Vodafone NZ have been refused permission to merge their New Zealand operations, the Commerce Commission saying it would hamper competitiveness and discourage broadband and mobile innovation.

The commission revealed its decision on Thursday morning.

Under the proposal, revealed last year, SKY TV was to buy Vodafone NZ for $3.44 billion through a mix of shares and $1.25 billion in cash.

SKY's subscriber numbers have dropped by 36,500 in the last year. Revenue dropped 3.7 percent, and its operating surplus before tax by 27.2 percent.

The decision comes four months after the Commerce Commission sent a letter to the two companies in October 2016 outlining "unresolved issues".

Concerns included the ownership of content, particularly live sports, which would make buying SKY on a standalone basis less attractive than bundled with Vodafone's broadband and mobile services.

The commission was also concerned about pricing, saying while consumers may benefit from lower prices in the short-term, the market may lose competition as other companies fail to match those prices.

Commission chair Dr Mark Berry said subsequent submissions had not resolved concerns raised in the letter.

"The proposed merger would have created a strong vertically integrated pay-TV and full service telecommunications provider in New Zealand owning all premium sports content," Dr Berry said.

"We acknowledge that this could result in more attractive offers for SKY combined with broadband and/or mobile being available to consumers in the immediate future. However, we have to take into account the impact of a merger over time, and uncertainty as to how this dynamic market will evolve is relevant to our assessment."

Mark Berry (Newshub.)
Mark Berry (Newshub.)

Submissions on the merger closed in November.

"The evidence before us suggests that the potential popularity of the merged entity's offers could result in competitors losing or failing to achieve scale to the point that they would reduce investment or innovation in broadband and mobile markets in the future," said Dr Berry.

"In particular, we have concerns that this could impact the competiveness of key third players in these markets such as 2degrees and Vocus.

"This is also against a backdrop of fibre being rolled out, making it an opportune time for the merged entity to entice consumers to a new offer. If significant switching occurred, the merged entity could, in time, have the ability to price less advantageously than without the merger or to reduce the quality of its service.

"Given we are not satisfied that we can say that competition is unlikely to be substantially lessened by the proposed merger, we must decline clearance."

Threat of legal action

Rival telcos Spark and 2degrees opposed the merger, and planned to take legal action if it had been approved.

"The proposed merger will be bad for consumers, resulting in poorer choice and higher prices for consumers, especially when it comes to sports content," Spark general manager of regulatory affairs John Wesley-Smith said on Wednesday.