ComCom declines Sky-Vodafone merger

The Commerce Commission has declined to grant clearance for the proposed merger of Sky Network Television and Vodafone New Zealand.

The commission said its assessment focused on the impact of the proposed merger on competition in both the broadband and mobile telecommunications markets. To grant clearance, the commission would need to be satisfied that the proposed merger would not be likely to substantially lessen competition in any market in New Zealand.

In a statement, Sky chief executive John Fellet said: “This is a very disappointing conclusion to a merger we saw as enhancing New Zealand’s communications and media landscape. From here we will continue to strive to deliver innovative ways to curate and deliver entertainment to all of New Zealand.”

Vodafone said it would "carefully review the commission’s statement and consider all courses of action." 

“We are disappointed the Commerce Commission was unable to see the numerous benefits this merger brings to New Zealanders,” said chief executive Russell Stanners.

Rival telco Spark welcomed the decision.

“We’re generally supportive of market consolidation where it leads to better outcomes for consumers,” said Spark’s general manager regulatory affairs John Wesley-Smith.

“In today’s digital age, consumers want to be able to watch their favourite sports wherever and whenever they want. Viewers have been voting with their wallets away from out-dated content bundle models that force them to pay for unwanted content, set-top boxes or service providers. The lack of a meaningful wholesale market today for Sky’s sports content means we and other mobile and broadband providers have been held back from offering our customers new ways to watch sports content in ways that are already the norm elsewhere in the world. That wholesale market would not have developed at all had the merger gone ahead, but will and must develop now.

“While Sky will no doubt be disappointed with the outcome, we believe there is still a line of sight to a promising and sustainable commercial future for Sky. Spark, alongside several other broadband and mobile providers, would welcome the opportunity to bundle modern, on-demand versions of Sky's core sporting content with their broadband and mobile packages, if Sky is willing to create a vibrant wholesale market for its content.”

Commission chairman Mark Berry said the commission outlined its concerns with the proposed merger in a Letter of Unresolved Issues in October last year and subsequent submissions had not resolved these concerns. As a result, the commission had not been able to exclude the real chance that the merger would substantially lessen competition.

Impact over time

“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. However, we have to take into account the impact of a merger over time, and uncertainty as to how this dynamic market will evolve is relevant to our assessment,” Dr Berry said.

“Around half of all households in New Zealand have Sky TV and a large number of those are Sky Sport customers.

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.

“To clear the merger we would need to have been satisfied that it was unlikely to substantially lessen competition in any relevant market. The evidence before us suggests that the potential popularity of the merged entity’s offers could result in competitors losing or failing to achieve scale to the point that they would reduce investment or innovation in broadband and mobile markets in the future. In particular, we have concerns that this could impact the competitiveness of key third players in these markets such as 2degrees and Vocus.

“This is also against a backdrop of fibre being rolled out, making it an opportune time for the merged entity to entice consumers to a new offer. If significant switching occurred, the merged entity could, in time, have the ability to price less advantageously than without the merger or to reduce the quality of its service. Given we are not satisfied that we can say that competition is unlikely to be substantially lessened by the proposed merger, we must decline clearance.”

The commission said it would release its full reasons for declining "in due course."