Broadband helped seal fate of Sky- Vodafone deal
The government- sponsored rollout of a national fibre network was among the things that went against a tie- up between pay- TV operator Sky Network Television and telecommunications group Vodafone New Zealand, says the Commerce Commission.
In February, the competition regulator rejected the $ 3.44 billion merger to create a vertically integrated payTV service and telecommunications provider. Almost two months later, on Thursday the commission released the reasoning behind its decision.
At the time, the commission said a principal objection was the ownership of “all premium sports content”, which the merged entity could then bundle up into a single mobile, landline, broadband and pay- TV offering, which in itself posed a real chance of substantially reducing competition.
The 145- page report said there was no close substitute for premium live sports rights in New Zealand, making it easier for a merged Sky- Vodafone group to attract customers at the expense of smaller telecommunications service providers ( TSPs). What’s more, the government- sponsored ultra- fast broadband ( UFB) programme presented a “significant opportunity” to attract new customers with a larger bundle of services.
“The rollout of UFB is expected to promote increased rates of switching in New Zealand, with approximately 1.1 million premises in play by 2019,” the report said. “Given this, and changing consumer preferences, we do not consider that historic rates of switching from other jurisdictions provide a reliable predictor of future switching in New Zealand.”
Once the UFB programme i s completed, the regulator said evidence suggested churn “significantly reduced for customers on bundles” which would “lift acquisition costs and “likely put a significant number of customers ‘ out of reach’ of rival TSPs”.
In a separate statement, Sky TV said it and Vodafone were assessing the report “so that they can determine their future steps in relation to the proposed merger, if any”. The companies filed High Court papers to make sure any appeal would fall within the statutory timeframe.
The companies want to create the country’s largest telecommunications and media group, with Sky TV buying Vodafone NZ for $ 3.44b, 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 have become a 51 per cent majority shareholder in Sky TV, in what amounted to a reverse takeover.
The pay- TV operator planned to borrow $ 1.8b from Vodafone to fund the purchase, repay existing debt and use for working capital.
The regulator said the merger could boost competition in the short term as companies fought more aggressively for customers.
However, that would change over time and the commission said it could not rule out that at least one significant TSP “would suffer a significant loss of scale”, squeezing margins and reducing their ability and incentive to invest.
“This, in turn, would allow the merged entity to raise or maintain prices at levels higher than would prevail absent the merger,” it said.
As more premium sports i s watched online, the regulator said it anticipated consumers would value bundled packages of telecommunications and content more highly, and those “offered by a single supplier such as the merged entity are likely to be even more attractive to consumers who view their content and broadband and/ or mobile services as closely related, if not as one and the same thing”.
The regulator said New Zealand differed from other nations in that only one broadcaster held the majority of live sports rights, and there were no anti- siphoning laws to prevent payTV operators buying monopoly rights.
“This potentially makes the rights to these sports more valuable than elsewhere, and switching to the merged entity may be higher than might be expected elsewhere, given there would be only one provider of integrated broadband bundles containing premium live sports content.”
Sky shares fell 0.8 per cent on Thursday to $ 3.82.