Commerce Commission Declines Vodafone/Sky Merger

The Commerce Commission has declined to grant clearance for the proposed merger of Sky Network Television and Vodafone New Zealand.

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. As a result, the Commission had not been able to exclude the real chance that the merger would substantially lessen competition.

“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. 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.

“Around half of all households in New Zealand have Sky TV and a large number of those are 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.

“To clear the merger we 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 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. 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.”

A copy of the Commission’s full reasons for decline will be released in due course.

Background
Vodafone Europe B.V. (Vodafone Group) sought clearance to acquire up to 51% of the shares in Sky Network Television Limited (Sky). Sky also sought clearance to acquire up to 100% of the assets and/or shares of Vodafone New Zealand Limited (together, the proposed merger). The merged Sky/Vodafone entity would have been controlled by Vodafone Group.

Clearance Applications
In order to grant clearance, the Commission must be satisfied that a merger will not be likely to substantially lessen competition in any relevant market. Under the Commerce Act we can accept structural divestments (shares or assets) to resolve competition concerns. However, we cannot accept behavioural undertakings such as written agreements from applicants stating they will make certain commercial decisions to address competition issues we have raised.