Vodafone, Sky NZ merge gets slapped down

The proposed merger of Vodafone and Sky in New Zealand has been denied by the New Zealand Commerce Commission.

Back in June last year the two decided to get their merge on. It looked like a relatively complicated affair, with Sky offering up nearly $900 million in cash plus shares to own just about 51% of the joint entity. However, ownership of the venture would come under minority shareholder Vodafone. Weird – but it’s not for us to judge.

The proposition was quite clear: NZ’s number one mobile player joins forces with NZ’s number one TV provider – happy times. There’s significant competition in the market – so it didn’t look too anticompetitive. Plus, the precedent had been set in Europe, the UK and the US that mobile-to-TV convergence is all gravy.

That didn’t matter one jot to the NZ regulatory body though. NZCC’s principal argument is that it doesn’t know exactly how the deal will pan out long term, and what the impact will be on the country’s telecoms market. It also pointed out that initial concerns were highlighted to Vodafone and Sky back in October, but those concerns hadn’t been suitably allayed.

“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,” said NZCC Chair Mark Berry. “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.”

The full NZCC statement is below, and it makes decent reading as justification for the commission’s decision to decline clearance. Vodafone confirmed acknowledgement of the commission’s decision with the most perfunctory statement: “Vodafone Group Plc notes the decision of the New Zealand Commerce Commission to decline to grant clearance for the proposed merger of Vodafone New Zealand and SKY Network Television Ltd.”

Full NZCC statement:

“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. 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.

“Around half of all households in New Zealand have Sky TV and a large number of those are Sky Sport customers. Internationally, the trend for bundles that package up broadband, mobile and sport content is growing. Given the merged entity’s ability to leverage its premium live sports content, we cannot rule out the real chance that demand for its offers would attract a large number of non-Vodafone customers.

“To clear the merger we would need to have been satisfied that it was unlikely to substantially lessen competition in any relevant market. 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. 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.”