Shares closed on Tuesday at $5.45 but after the commission announcement, they sank to a low of $4.95. More than 500,000 shares were traded during the day with the shares closing last night at $5.07, down 7%.
The commission said it would investigate the pay-TV operator's contracts with ISPs (internet service providers) and potential barriers to accessing content. The announcement was made after the commission approved a joint venture between Sky and state-owned Television New Zealand to launch a budget pay-TV platform, Igloo.
Craigs Investment Partners broker Chris Timms said the sell-off of shares highlighted the uncertainty seen in the market in recent weeks. A recent decision by the commission on the access price to Chorus' wire network caused investors to flee the company as they tried to work out the implications.
"Investors pull the pin and try and work out what the decision means. There is plenty of uncertainty out there and this highlights the nervousness in the market," he said.
Labour communications and IT spokeswoman Clare Curran warned that the reluctance of the commission to challenge the growing market dominance of Sky TV was a weakening of its role to defend a competitive market for the benefit of New Zealand consumers.
"This decision allows Sky to access a greater section of the New Zealand market by offering a cheaper version of its existing service. Igloo does not represent a new provider. It's a subset of the existing dominant provider.
This shows a concerning development for New Zealand's pay TV."
ASX-listed Quickflix has welcomed the New Zealand antitrust regulator's investigation into Sky Network Television's content deals with internet service providers, saying the issues raised by the Commerce Commission are "serious and real".
"Our own experiences in launching Quickflix here have illustrated that the issues raised by the commission are serious and real," Quickflix managing director Paddy Buckley said in a statement.
"We will be sharing our information with the commission and assisting it with its investigation."
Ms Curran said she supported the commission's decision to investigate Sky's content contracts with ISPs. The investigation would place a spotlight on the barriers to entry for new players.
Sky took the view there were no barriers to competition and that complaints were driven by its competitors, However, there were widespread concerns - including from a range of independent commentators - that serious competition issues existed because of Sky's market dominance, she said.
Sky's content arrangements have come under greater scrutiny since the antitrust regulator launched an investigation into the drivers of broadband uptake after the Government stumped up $1.5 billion to build a national high-speed network.
Sky failed in its bid to have content excluded from the commission's review, which it had argued could become a quasi-regulatory inquiry if content arrangements were found to be a barrier to uptake.
Retail service providers (RSPs), which offer access to the internet and enable bundling of Sky's video content, said their "reseller and retransmission agreements restrict RSPs' ability and incentive to partner with new entrants," according to the regulator's Igloo investigation report.
The content deals lasted several years, and meant RSPs could not charge for their own content, nor offer assistance to rival pay-TV operators, the report said.
Sky chief executive John Fellett said the new investigation was "because of complaints from our competitors" and that the company would co-operate with the regulator. Sky was confident its arrangements did not breach the Commerce Act. - Additional reporting BusinessDesk
