NZ telcos seek High Court order delaying Sky TV-Vodafone NZ merger

Spark, 2degrees, and InternetNZ are seeking a 36-hour delay in the event of the Sky TV-Vodafone NZ merger being approved by the New Zealand Commerce Commission.
Written by Corinne Reichert, Contributor

New Zealand telecommunications providers Spark, 2degrees, and InternetNZ have filed proceedings with the High Court requesting a 36-hour delay on any merger to occur between Sky TV and Vodafone NZ.

The merger is due to be decided by the regulator on Thursday, with the court proceedings set for Wednesday morning.

A 36-hour delay would provide Vodafone NZ's rivals with "breathing space" wherein they can examine and question the Commerce Commission's decision, according to Spark GM of Regulatory Affairs John Wesley-Smith.

"To allow Sky and Vodafone to push ahead with the merger without this breathing space would likely mean the merger would already have been effected, and be difficult to unwind, before opposing parties have had a chance to view the detailed reasoning underlying the commission's decision," he said.

"We expect the commission's reasoning will be relatively detailed and fairly complex given the amount of information that has been put before it, so it's reasonable to have a short period to digest the decision before the merger becomes a fait accompli.

"Given the importance of this decision to the future of broadband, mobile, and pay TV markets, it would be a bad outcome if there were grounds to review the decision, yet that became a meaningless exercise because the merger was already firmly in place."

The High Court application was made following a rejection by Sky TV and Vodafone NZ of a voluntary pause period.

"Sky does not consider that there is any proper basis for seeking an interim stay, and Sky intends to oppose any such application and seek an undertaking as to damages," the subscription TV company said in response to the court proceedings.

Spark said it is most concerned about Sky TV's monopoly over premium sports content, which would then be extended to Vodafone NZ mobile customers.

"New Zealand sports lovers would be the ones to miss out if the merger went ahead in its current form," Wesley-Smith argued.

A merger is not guaranteed; in October, the Commerce Commission sent a letter of unresolved issues to Sky TV and Vodafone NZ outlining several competition issues, saying it remained unconvinced that the merger would not substantially lessen competition in both the pay TV and telecommunications markets.

"On the basis of information gathered to date, the commission is not satisfied that the proposed merger will not have, or would not be likely to have, the effect of substantially lessening competition," the regulator said in October.

"We continue to have concerns that the proposed merger may give rise to competition issues in the provision of telecommunications services as a result of vertical and/or conglomerate effects."

This followed industry criticism in August, with rival telcos accusing 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.

A previous submission from Spark in response to the Statement of Preliminary Issues released the previous month had identified the main issue as being premium sport, claiming that it is "essential" content for being able to attract telecommunications customers. Were the merger to go ahead, Sky's sport content ownership would extend into Vodafone NZ's mobile and broadband offerings, Spark said, and "distort competition" in those segments -- including to the detriment of the New Zealand government's Ultra-Fast Broadband (UFB) project.

2degrees, the third-largest telco in New Zealand after Spark and Vodafone NZ, agreed, saying that the acquisition of sports and entertainment media content would give it an unfair advantage in attracting and retaining customers across the mobile and home broadband segments.

Vodafone Group and Sky Network Television reached an agreement to form an integrated telco and media group in June, forecasting that it would make NZ$2.91 billion in revenue for FY17, and earnings before interest, tax, depreciation, and amortisation (EBITDA) of NZ$786 million.

If allowed by the regulator and approved by shareholders, the merger will occur 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.

The combined group is predicted to have a net present value of around NZ$850 million, or NZ$1.07 per share.

Sky and Vodafone NZ already offer bundled deals of pay TV, broadband, and phone services to their customers. A combined entity would mean offering Sky's entertainment offerings across all smart devices on Vodafone's fixed-line and mobile networks.

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