Vodafone NZ and Sky push ahead with merger

Vodafone NZ and Sky TV have circumvented the New Zealand Commerce Commission's rejection of its merger by gaining consent from the Overseas Investment Office.
Written by Corinne Reichert, Contributor

Pay TV provider Sky TV and telecommunications carrier Vodafone NZ have pushed ahead with their proposed merger, receiving consent from the New Zealand Overseas Investment Office.

The Overseas Investment Office granted consent on Friday in spite of the New Zealand Commerce Commission declining clearance back in February because it could substantially lessen competition in the mobile telecommunications and broadband markets.

Sky and Vodafone were able to gain approval from the Overseas Investment Office instead of the commission because both companies are more than 25 percent owned by overseas entities, and because their asset value and purchase price are both worth more than $100 million.

"The merger of the two companies met the criteria required by the Overseas Investment Act 2005," the Overseas Investment Office said.

"The application involved significant business assets, and so to gain consent the applicants needed to demonstrate their business experience and acumen, their financial commitment, and that those controlling the companies are of good character and meet certain criteria under the Immigration Act 2009."

The Overseas Investment Office called the Commerce Commission's decision on the matter "not relevant" to its own assessment, because they are subject to different tests.

"The Commerce Commission test relates to competition in a market, which is different to the criteria that the Overseas Investment Office is required to consider for an application involving significant business assets," the Overseas Investment Office explained.

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.

Vodafone NZ had previously warned that it would review the commission's rejection and "consider all courses of action".

One of the Commerce Commission's strongest reasons for the merger rejection was the issue of premium sports content ownership, with the competition issues presented to the companies in October last year also not sufficiently addressed.

"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," Commerce Commission chair Mark Berry said at the time.

"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."

The New Zealand High Court had also 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's decision.

Rival telecommunications providers Spark, 2degrees, and InternetNZ had filed proceedings with the High Court, saying a short delay would provide them with "breathing space" wherein they could examine and question approval from the Commerce Commission, should it be given.

This followed industry criticism in August, when the 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 NZ earlier this month also acquired a majority stake in Farmside, the rural broadband and satellite arm of small carrier TeamTalk, for NZ$10 million in cash.

Vodafone's 70 percent acquisition blocked competitor Spark's attempts to acquire TeamTalk in its entirety.

Farmside offers rural broadband services and is one of the largest resellers of the New Zealand government's Rural Broadband Initiative (RBI). It uses satellite, ADSL, and wireless technology to provide internet connectivity in regional areas, and has a contact centre in Timaru with over 70 staff members.

"This is an opportunity to deliver better outcomes for rural customers, to increase our presence in the rural broadband market, and to utilise the skill sets of the two complementary companies," Vodafone NZ CEO Russell Stanners said in April.

"The investment by Vodafone in Farmside further deepens the strategic relationship between ourselves and TeamTalk. There are other opportunities for us to partner, for instance sharing fibre including future upgrade and maintenance costs."

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