How can the reduction of a market from three firms to two be good for competition?
This is the question that had to be asked after the NZ$840 million Vodafone takeover of TelstraClear was announced late last week.
But contrary to expectations, the consolidation will be good. This is because, for years, New Zealand has been dominated by the monopolistic Telecom.
Like any former state telco monopoly, such as Telstra in Australia and BT in Britain, it has held onto its residential communications market share tenaciously.
Yet, other providers were able to perform when newer technologies came onto the scene, such as mobile or broadband. Indeed, in New Zealand, while we saw Telecom dominant in the residential market, Vodafone was strongest in mobile. TelstraClear seemed to do better on broadband, relatively speaking.
By itself, TelstraClear is pretty weak in the mobile space, just as Vodafone is in the residential and broadband markets. But bring them together and it seems the sum is greater than the constituent parts. The new combined Vodafone will be a big boy that can tackle Telecom.
And, as one industry insider just told me, we might see Vodafone make better use of TelstraClear's fibre investment, which, although it was extensive in New Zealand's major cities, was little exploited. With Telecom grabbing the bulk of the government's ultra-fast broadband project, the battle will be significant.
It's "Game On!", to quote the New Zealand Herald.
Of course, there are other issues to consider. For example, a strong Vodafone might damage the relative newcomer to the mobile space, 2 Degrees, which might harm competition. Regulators will look carefully into this, however, and are supposed to make a ruling on the planned takeover by the end of the month. Although, due to the extent of the deal, it is likely they will ask for more time.
If the regulators say yes, we will have to wait even longer for the results of the deal, as it could well take Vodafone one to two years to integrate the various parts of the new merged entity. But I'm hopeful that, after years of monopoly, we will eventually see a competitive duopoly as two big boys fight it out.
Newspaper readers in Australia might liken it to a fight between Rupert Murdoch and Fairfax; washing powder users to a battle between Proctor & Gamble and Unilever. Such a fight can only mean a better deal for the consumer.