Vodafone NZ-Sky TV merger rejected by regulator

The New Zealand Commerce Commission has declined clearance for a merger to occur between pay TV provider Sky TV and telecommunications carrier Vodafone NZ, saying it could substantially lessen competition in the mobile telecommunications and broadband markets.

According to chair Mark Berry, one of the strongest reasons for the merger rejection was the issue of premium sports content ownership.

"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," Berry said on Thursday morning when announcing the commission's decision.

"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."

Berry said the regulator had decided that a merged Sky-Vodafone entity could mean competitors fail to achieve scale, resulting in the reduction of investment and innovation in the mobile and broadband markets -- especially for "key third players" including Vocus and 2degrees.

"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," Berry added.

"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."

Berry said the competition issues outlined in its letter of unresolved issues to Sky TV and Vodafone NZ in October last year were also not sufficiently addressed by the parties.

Vodafone NZ said it will review the commission's decision and "consider all courses of action".

"We are disappointed the Commerce Commission was unable to see the numerous benefits this merger brings to New Zealanders," Vodafone NZ CEO Russell Stanners said.

However, rival telecommunications provider Spark welcomed the regulator's decision, calling it a win for New Zealand consumers, also citing the issue of premium sports content ownership.

"The lack of modern on-demand options for how New Zealand sports fans can access 'must-watch' premium sports content today, which would have been exacerbated by the merger, meant the merger was not in the best interests of consumers and so we believe the decision to decline was the right one," Spark GM of Regulatory Affairs John Wesley-Smith said.

"The lack of a meaningful wholesale market today for Sky's sports content means we and other mobile and broadband providers have been held back from offering our customers new ways to watch sports content in ways that are already the norm elsewhere in the world. That wholesale market would not have developed at all had the merger gone ahead, but will and must develop now."

Wesley-Smith added that Spark would welcome bundling opportunities for sports content with Sky going forward.

The regulator's decision came a day after the New Zealand High Court ruled that there would be a short-term delay if the merger were to be approved, with its ruling prohibiting Vodafone and Sky from completing their merger until midnight on the third day after the Commerce Commission published its decision.

Spark, 2degrees, and InternetNZ had filed proceedings with the High Court earlier this week, saying a short delay would provide Vodafone NZ's rivals with "breathing space" wherein they could examine and question the Commerce Commission's decision.

This followed industry criticism in August, when rival telcos accused Vodafone NZ and Sky TV of trying to squeeze the competition out of the wholesale premium live sport and entertainment content market, the retail residential fixed-line broadband market, the retail mobile broadband market, and the pay TV market.

Vodafone Group and Sky Network Television reached an agreement to form an integrated telco and media group in June 2016 via Sky acquiring all Vodafone NZ shares for a total purchase price of NZ$3.44 billion through the issue of new Sky shares, in return giving Vodafone Europe a 51 percent stake in the combined group, in addition to cash consideration of NZ$1.25 billion funded through new debt.