Vodafone and Sky are not allowed to merge into a single entity, the Commerce Commission announced this morning.
Commission chair Dr Mark Berry said 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," he said.
He added that about half of all households in New Zealand had Sky TV and a large number of those were 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," Dr Berry said.
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.
In particular, we have concerns that this could impact the competiveness of key third players in these markets such as 2degrees and Vocus."
This was 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, Dr Berry said.
"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."
Sky TV CEO John Fellet said in a statement to the NZX the Commission's decision was disappointing.
"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."
The merger would have seen Sky TV buy Vodafone NZ for $3.44 billion, funded by a payment of $1.25b in cash and the issue of new Sky TV shares at a price of $5.40 per share. Vodafone would in turn become a 51 per cent majority shareholder in Sky TV, in what amounts to a reverse takeover.
Sky would have then borrowed $1.8b from Vodafone to fund the purchase, repay existing debt and for working capital.
Vodafone chief executive Russell Stanners would have headed the merged business.
What the Commerce Commission needed to consider:
• Is the merger likely to substantially reduce competition in a market?
• Would the merged business be able to raise prices or reduce quality?
• Would the merged entity be able to render its rivals less able to compete?
Vodafone
• 2016 revenue: $1.96 billion
• More than 3000 staff
Sky
• 2016 revenue: $929 million
• About 1500 staff
