Premium sports monopoly key to Sky-Vodafone merger rejection

Ownership of "all premium sports content" by a "strongly vertically integrated pay-TV and full-service telecommunications provider" is the key reason for the Commerce Commission's rejection of the proposed merger between Sky Network Television and Vodafone New Zealand.

"Had the merger not included all premium sports content we would likely have cleared this merger," commission chairman Mark Berry told a media briefing in Wellington.

The Sky Sports channel was a "unique circumstance" in the New Zealand market because of the extent of Sky's hold on "must-have" sports followed by New Zealanders - principally rugby and netball.

Mr Berry says "unresolved issues" outlined to the applicants last October had remained unresolved and its concerns particularly related to the impact of the merger on challenger competitors in the telecommunications market, TwoDegrees and Vocus.

"The commission has not been able to exclude the real chance that the merger would substantially lessen competition," Mr Berry says.

The merger might have resulted 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 the merger over time, and uncertainty as to how this dynamic market will evolve is relevant to our assessment.

"These are difficult markets to assess. If we are in doubt, then we are not satisfied. The onus is on the applicant to satisfy us. If we are not satisfied, we have no option but to decline," he says.

The main concern was a single telecommunications company dominating ownership of premium sports content. About half of all New Zealand households have Sky TV and a large number are Sky Sports customers, where sport is a "must have" element of the subscription, the commission noted.

Acknowledging the international trend for packaging of broadband, mobile and sports content was growing, the commission said it couldn't rule out the "real chance" that Vodafone-Sky would be able to leverage their sports content "to attract a large number of non-Vodafone customers.

"The potential popularity of the merged entity's offers could result in competitors losing or failing to achieve scale to the point they would reduce investment or innovation in broadband and mobile markets in the future."

The national rollout of fibre-optic cable also created "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."

The announcement follows yesterday's announcement by Sky that its profitability for the first half of the current financial year had fallen 32 percent, reflecting higher programme costs and falling subscriber numbers. Sky's share price closed 2.7 percent lower at $4.35 yesterday.

Telco competitor Spark New Zealand yesterday succeeded in securing a High Court-ordered stay on the merger clearance, had the commission approved it.

(BusinessDesk)