New Zealand's Commerce Commission has outlined in its Statement of Preliminary Issues that it will investigate whether the proposed merger of Vodafone and Sky Network Television will have any unilateral, or vertical and conglomerate effects, and substantially lessen competition in relevant markets, and noted the latter of the two issues will be the main focus of its investigation.
Vodafone Group and Sky announced they reached an agreement in June to form an integrated telecommunications and media group forecast to make NZ$2.91 billion in revenue for FY17, and earnings before interest, tax, depreciation, and amortisation (EBITDA) of NZ$786 million.
The commission said that while Vodafone and Sky have pointed out in their applications there is currently no competitive overlap, it plans to investigate whether the two companies would become more "meaningful" competitors without the merger.
"For example, we will consider whether, without the merger, Vodafone might start providing content on a stand-alone basis (ie, not in conjunction with Sky) which would compete with one of Sky's offers," it said.
"We will also consider whether, without the merger, Sky might start providing telecommunications services on a stand-alone basis (ie, not in conjunction with Vodafone). If such expansion would be likely without the merger, then any potential competitive constraint from this would be lost as a result of the proposed merger."
As part of the investigation, the commission plans to assess whether existing competition in the markets in which any new Vodafone or Sky services would be launched without the merger is currently weak, and if Vodafone or Sky are uniquely positioned to be a potential entrant that would impose constraints in the relevant markets without the merger.
In investigating the vertical or conglomerate effects of a merger, the commission will examine if any foreclosure will substantially lessen competition in the market, as well as if it could adversely affect Vodafone's current and potential future competitors.
Specifically, it will consider whether the merged entity could profitably discriminate against other online content providers, such as Lightbox and Netflix, by blocking Vodafone customers' access to these websites, or by deciding not to host rival content providers on Vodafone's network.
In addition, the commission said it will examine if the merger would make Sky content only available to Vodafone customers, such as by selling Sky's pay-TV services bundled with Vodafone's telecommunications services; and whether it would make Sky Content available to Vodafone customers a predatory price.
The commission is also calling interested parties to submit comments on the likely competitive effects of the proposed merger by July 28.
The commission is currently scheduled to make a decision by November 11, but will be able to give clearance to the proposed merger if its investigation does not identify the merger will substantially lessen competition.
If the merger is approved, Sky will acquire all of 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.
The combined group is predicted to have a net present value of around NZ$850 million, or NZ$1.07 per share, with all Sky directors recommending shareholders vote in favour of the merger during the meeting expected to take place early next month.