Sky, Vodafone merger sees delay

Vodafone NZ CEO Russell Stanners at the SKY TV/Vodafone merger press conference at the Craigs Investment Partners offices. Photo / Jason Oxenham

Sky Television and Vodafone have the next two weeks to try to allay the Commerce Commission's worries about the pair's planned $3.4 billion merger.

The regulator yesterday pushed out the deadline for its decision on the proposed tie-up and said as it stands it wasn't satisfied that the merger wouldn't "substantially lessen competition". Sky TV's shares fell 0.18 cents to close at $4.62 on the back of a letter from the commission detailing its concerns, which the two companies have until November 11 to respond to. That was the date when the commission was due to reveal whether it would give the deal the green-light. A new deadline has not yet been set.

Vodafone and Sky yesterday would not say more than what the latter told the NZX, namely that it had "full confidence in the process".

"The request for additional comment demonstrates the commission is taking an appropriately thorough approach to this transaction," Sky said.

Speaking broadly about the commission's process, competition lawyer and Chapman Tripp partner Neil Anderson said during complex cases it wasn't unusual for the regulator to send the type of letter it did yesterday.

Just because the commission wasn't presently satisfied the merger wouldn't reduce competition, that doesn't necessarily mean it would decline the deal, he said.

Shane Solly, director at Harbour Asset Management, said the letter was a "red flag" for investors that the commission was willing to "challenge commercial arrangements".

Sky TV plans to buy Vodafone New Zealand for $3.44b in cash and shares in a reverse takeover which would see Vodafone's British parent group own 51 per cent.

Although the commission has yet to approve the deal, Sky TV shareholders have voted overwhelmingly in favour of the merger, which would create a business with roughly 4000 staff and revenue of around $3b.

In its letter, the commission's competition manager Katie Rusbatch said the regulator was concerned because: The merged business would have "substantial market power by virtue of its portfolio of content, including premium content such as live rugby";

The combined company would have the ability and an incentive to make buying Sky by itself less attractive than in a bundle with a mobile or broadband package. This would lead to customers moving to the merged business; It would also have less of an incentive to enter into reselling deals with others and, therefore, rivals would be unable to offer bundled Sky and telecommunications packages.

This could mean one or more rivals may lose customers and therefore no longer provide an "effective constraint" in the telecommunications market, which could lead to price rises.

Spark and 2degrees have formally opposed the merger, saying the deal would adversely affect consumers as a result of creating a company willing and able to use premium live sports content to stifle competition, something Sky TV chief John Fellet described as "misleading and inaccurate".additional reporting BusinessDesk