NO DEAL: Vodafone Sky merger no go

The Commerce Commission has declined to grant clearance for the proposed merger of Vodafone New Zealand and Sky Network Television, in a much anticipated decision this morning.

Vodafone and Sky officially confirmed it was in discussions about a possible merger back in June 2016, and, as expected, faced a flood of opposition from its competitors. Vodafone sought clearance to acquire up to 51% of the shares in Sky, and Sky also sought clearance to acquire up to 100% of the assets and/or shares of Vodafone. The merged Sky/Vodafone entity would have been controlled by Vodafone Group.

Just yesterday the High Court ruled it would order a short-term stay in the event the Commerce Commission did clear the merger, following requests from Spark, 2degrees and InternetNZ.

At the time, Spark said without the stay, there was a risk that Vodafone and Sky would immediately take steps to implement the merger and make it a 'fait accompli – which would render any future legal review a meaningless exercise'.

However, the stay is now redundant as the Commission said it had not been able to exclude the 'real chance' that the merger would substantially lessen competition.

The Commission's 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.

Chair Dr 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.

Vodafone chief executive Russell Stanners says Vodafone will 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," he says.

However, Berry says 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," he explains.

"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," Berry said.

"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," he explains.

Berry says to clear the merger the Commission 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," he says.

Berry says the Commission would have particular concerns that this could impact the competiveness of key third players in these markets such as 2degrees and Vocus.

Stay tuned, more to come