The Commerce Commission has declined to grant clearance for the proposed merger of Sky Network Television and Vodafone New Zealand, creating scenes of celebration across the boardrooms of Spark and 2degrees.
Following a drawn-out public battle, 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.
But despite pleads from both Sky and Vodafone, it remain unconvinced.
“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,” Commerce Commission Chair, Dr Mark Berry, said.
“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 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.
“Around half of all households in New Zealand have Sky TV and a large number of those are Sky Sport customers,” Dr Berry added.
“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, Dr Berry said the Commerce 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 explained.
“In particular, we have concerns that this could impact the competitiveness of key third players in these markets such as 2degrees and Vocus.”
According to Dr Berry, 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,” he added.
“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.”
As expected, Vodafone reacted negatively to the verdict, with the telco giant insisting it will “carefully review” the Commission’s statement and “consider all courses of action” in the future.
“We are disappointed the Commerce Commission was unable to see the numerous benefits this merger brings to New Zealanders,” Vodafone New Zealand CEO, Russell Stanners, argued.
Unsurprisingly however, the outcome was praised by the telecommunications industry as a whole, with Spark New Zealand citing the decision as a “big positive for Kiwi consumers”.
“We’re generally supportive of market consolidation where it leads to better outcomes for consumers,” Spark General Manager Regulatory Affairs, John Wesley-Smith, said.
“However, the lack of modern on-demand options for how New Zealand sports fans can access ‘must-watch’ premium sports content today, which would have been exacerbated by the merger, meant the merger was not in the best interests of consumers and so we believe the decision to decline was the right one.
“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.”
Wesley-Smith said the lack of a “meaningful wholesale market today” for Sky’s sports content means Spark and other mobile and broadband providers have been “held back” from offering 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,” Wesley-Smith added.
“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.”
Looking ahead, Wesley-Smith said 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, on the basis that Sky is “willing to create a vibrant wholesale market for its content”.
In addition, Wesley-Smith said the need for the market to be able to deliver better choice for sports fans will only grow.
“This decision recognises that the sports content market in New Zealand needs to catch up with consumer reality, as it has in many other markets around the world,” he added.
“Increasingly, consumers are demanding greater choice and flexibility as to how they access premium content. Today’s decision is a welcome step in the right direction.”
Across the market, 2degrees insisted the Sky / Vodafone merger was a “fight worth having”, highlighting the importance of protecting competition – especially a three player mobile market.
2degrees had opposed the merger, providing expert reports and evidence of the harm that would be caused to competition if it had been approved and highlighting the importance of ‘must have’ sports content controlled by Sky.
“The Commission has recognised that competition is still developing, and that the impact of competition from companies such as 2degrees can be reduced over time if monopolies are created,” 2degrees CEO, Stewart Sherriff, added.
“2degrees has been fighting for fair for many years - we fought for number portability, regulated mobile termination rates and national roaming so we could enter the market and compete. The results of those battles has seen prices plummet and a range of new services introduced.
“When we saw the impact a one company stranglehold on ‘must have’ content could have on competition in the mobile and broadband markets, we felt it was another fight worth having.”
Much like Spark, Sherriff said 2degrees remains “very interested” in working with Sky to customise its content and deliver new services via mobile and broadband.
“We’ve always been keen to work with Sky to do more with content,” he added. “We have a fantastic national mobile network and high speed broadband network and are always looking to offer services that give customers something new.”