NZ ComCom publishes M2-Vocus statement of issues

The consumer watchdog has outlined its concerns on the M2-Vocus merger, with consideration on market control of wholesale broadband a key issue.

The New Zealand Commerce Commission (ComCom) has released its statement of preliminary issues, detailing the competition concerns that will be considered in its decision on approving the merge of Vocus Communications and M2 Group.

The statement of preliminary issues, which has regard to New Zealand's Commerce Act 1986, states that the commission will determine whether the merger would substantially lessen both existing and potential competition in the telecommunications industry, as well as whether it would countervail the market power of buyers.

The ComCom said it is specifically considering whether the merged entity would raise its own prices, reduce quality, and raise rivals' costs.

"We will consider the extent to which Vocus and M2 compete for the provision of fixed-line voice and broadband to both residential and commercial customers, and the degree of competitive constraint other providers in the market would provide on the merged entity," the statement of preliminary issues says.

"We will also consider whether in the absence of the acquisition, either Vocus or M2 would be likely to expand their offering in the near future (either their targeted customer groups and/or the type of services offered), and whether any competitive constraint from this would be lost as a result of the proposed acquisition."

The ComCom said it will also debate whether the company would control the market on the sale of backhaul services once merged, and whether it would have the motivation to deny its rivals' access to wholesale broadband services.

"We will consider whether the proposed merger would change the merged entity's incentive to worsen terms for backhaul inputs to those buyers that compete with the merged entity in downstream markets, in particular residential and commercial broadband and voice services. This in turn could result in a substantial lessening of competition in those downstream markets."

The NZ ComCom is accepting submissions on the potential merge until November 13, and will announce its final decision by December 4.

Earlier on Thursday, its Australian counterpart announced that it will not be opposing the merger.

According to the Australian Competition and Consumer Commission (ACCC), the merger will be permitted to take place because the companies have "limited overlaps" in providing wholesale and retail fixed broadband services and datacentre services -- and even when they do overlap, they are focused on different customer segments, with Vocus targeting enterprise and government while M2 delivers services to residential and small business customers.

ACCC chairman Rod Sims said that the merger would also not reduce competition to a significant extent among telcos.

"The ACCC concluded that this was primarily a merger between two complementary businesses. Significantly, the merged firm will also face significant competition from Optus, Telstra, and TPG. This merger consolidates the fourth player in the market," Sims said.

The companies' Merger Implementation Agreement in September gained the support of both boards, with the companies forecasting combined revenues of AU$1.8 billion for FY16, as well as earnings before interest, tax, depreciation, and amortisation (EBITDA) of AU$370 million.

Occurring via an M2 scheme of arrangement, the merger would be scrip based, wherein M2 shareholders will be given 1.625 Vocus shares per M2 share.

If approved by the NZ ComCom and by M2 shareholders, the merged entity would become the fourth-largest telecommunications provider in Australia and the third-largest in New Zealand, worth more than AU$3 billion.

The combined entity would provide retail internet, retail electricity and gas, corporate and wholesale internet and VoIP, datacentre and cloud services, domestic and international bandwidth, and dark fibre.