Sky and Vodafone appeal ComCom decision to block merger

The merger would mean the combined business could offer consumers enticing bundles of Sky TV and Vodafone's internet and mobile services. Photo / Greg Bowker

Sky Television and Vodafone are today filing appeals with the High Court against the Commerce Commission's decision to decline a merger between the two.

Both companies had indicated at the time of the decision that they would be appealing, indicating they had not given up hope of changing the commission's mind.

In a statement to the NZX today Sky TV said it would await the commission's reasons for declining the merger before assessing the next move.

The commission is expected to release its reasons in the coming weeks.

According to the Commerce Commission's initial statement, the merger Vodafone NZ and Sky TV were seeking would likely have gone ahead had it not been for Sky's premium sport content.

About half of all households in New Zealand had Sky TV and a large number of those were Sky Sport customers, Commission chair Dr Mark Berry said.

"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.

"The central question that we considered in this case was whether the merged entity would be able to leverage Sky's premium sports content to such an extent that over time it would reduce competition in the telecommunications markets, being broadband and mobile," he said.

To clear the merger, the Commission would need to have been satisfied that it was unlikely to substantially lessen competition in any of the relevant markets, Berry said.

"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 competitiveness 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 with new offers, 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."

In a press conference following the decision, Berry said that 65 submissions were made on the proposed merger - the most that the Commission had ever received on a proposed merger.

The merger rejection saw Sky TV shares tumble, wiping $293 million off the company's market value. This has since bounced back 0.6 per cent to $3.50.

Under the proposed merger, Vodafone would have become a 51 per cent majority shareholder in Sky TV, in what amounted to a reverse takeover.

Sky TV planned to borrow $1.8 billion from Vodafone to fund the purchase and working capital as well as repaying existing debt.