Orcon-2degrees $1.7b deal approved: Could a merger with Sky TV be next?

Inside the new headquarters of 2degrees in the Auckland CBD, with departing chief executive Mark Aue in the foreground. Photo / Dean Purcell

Now that the Commerce Commission has greenlit Orcon Group's merger with 2degrees, market chatter has turned to rumours that their combined business could in turn merge with Sky TV.

But Jarden research head Arie Dekker has poured cold water on the talk.

"It would surprise me, for two reasons," he told the Herald, shortly after the ComCom released its verdict this morning.

"Vocus [aka Orcon Group] has invested in stable assets and infrastructure. whereas the outlook for pay-TV content is much more uncertain," Dekker said.

"There could also be strong regulatory pushback," he said.

The Orcon Group-2degrees merger breezed through, as expected, but a bid to merge with Sky could be knocked back like the attempted Vodafone-Sky deal before it.

While they won't quite have Vodafone's heft, the combined Orcon and 2degrees will be "a significant player", Dekker said.

And while there's now more competition in the content space than there was when "VodaSky" was blocked five years ago, "Spark has not made strong progress," Dekker said.

The telco sold its entertainment streaming platform Lightbox, and Spark Sport recently failed to renew rights to the English Premier League as the franchise reverted to Sky.

Earlier today, the regulator approved the Orcon Group-2degrees merger, as widely expected given their combined operations should provide stronger competition for Spark and Vodafone - enhancing rather than weakening competition.

Dekker said there were no surprises in the watchdog's ruling.

ComCom deputy chairwoman Sue Begg said of the deal, which valued the combined business at $1.7 billion: "The focus of our inquiries was on wholesale and retail competition in broadband and fixed voice and mobile services. The evidence before us indicates that the merged entity will continue to face strong competition from existing competitors, including Spark and Vodafone."

Not a done-deal

However, there are a couple of hoops to jump through yet.

Shareholder and Overseas Investment Office approvals are still required. Again, this is regarded as likely a done-deal. In July last year, the OIO approved Voyage Australia's purchase of Vocus NZ (now rebranded Orcon Group), and nothing has changed about Voyage since.

An OIO spokesperson told the Herald the deal was still being assessed. There was no set timeline.

Given Orcon Group and 2degrees are still waiting for final boxes to be ticked, the pair have released no new information today about how they'll operate as a merged business.

But here's what we know so far:

• 2degrees will be the brand The combined business will be called 2degrees, Orcon Group CEO Mark Callander confirmed to the Herald earlier. 2degrees simply has the largest profile, so will be used as the "hero" and "employment brand", but Orcon's potpourri of sub-brands - including Orcon, Slingshot, 2Talk and Flip will persist.

• Callander will be the CEO The merged operations will be led by Orcon's Callander, with 2degrees CEO Mark Aue exiting stage left once the merger is complete. This is familiar territory for Callander, who has previously shepherded CallPlus through its integration with M2 then Vocus Group.

• An IPO is off the table Orcon Group and 2degrees put their respective listing plans on hold as they entered merger talks. But now, "There are no plans for an IPO. It's off the table," an Orcon insider told the Herald. Jarden head of research Arie Dekker said he thought a listing was "unlikely", because there was no longer any pressing need to raise capital. Previously, Orcon Group and 2degrees faced a degree of capital constraint, given their respective corporate parents carried relatively heavy debt loads. But in July last year, ASX-listed Vocus Group was sold to Voyage Australia - a joint venture between ASX-listed Macquarie Group and Australia's largest superannuation fund, Aware Super - both of which have deep pockets.

• Chairman up in the air 2degrees had ex-Port of Tauranga CEO turned professional director Mark Cairns lined up to chair its board if its listing went ahead. Now the position is up for grabs again.

• Digs up in the air Late last year, 2degrees moved most of its staff to a new headquarters in Fanshawe St in Auckland's CBD - part of a new office complex built by Mansons, with custom-designed open and shared workspaces for the telco (Spark and Chorus are in neighbouring buildings, also developed by Mansons - or at least Chorus will be shortly after a fit-out delayed by Omicron). 2degrees' new building is just 500m from Orcon Group's HQ, which is also relatively new.

Orcon Group CEO Mark Callander (inset), who was today named Group CEO of the merged business and departing 2degrees boss Mark Aue. Photos / File

An Orcon insider told the Herald, "We need to see what the working model looks like post-Omicron and anything else that comes up. We also have offices in Wellington and Christchurch, and staff there need a base – so we'll work through all of this."

• Major staff cuts unlikely 2degrees has 1200 staff today, Orcon Group 590. The Herald understands there won't be any major "synergies" cull, given 2degrees' strength is in mobile, and Orcon's is in fixed-line through its retail broadband operation, its wholesale division - which, among other activities, provisions Sky Broadband - and its 4200km nationwide fibre backbone network.

• Economist and AUT senior research fellow Richard Meade said a combined 2degrees-Orcon Group could also boost competition in the power market, given Orcon owns a small electricity retailer, Switch Utilities - and could extend its power bundling to those who are 2degrees customers today, giving it more scale.

None of their rivals objected to Orcon and 2degrees' merger during the ComCom's submission process.

But Chorus - which took a neutral position on the deal - did use its submission as a platform to parade one of its hobby horses: that Spark, Vodafone and 2degrees face next-to-no regulation of their fixed-wireless broadband services, while UFB fibre is heavily bound in red tape.

Chorus would probably push this point a lot harder if the combined Orcon Group/2degrees makes a play for Sky TV - which could, conceivably, see discounted Sky content used as a lure to hook customers on to fixed wireless.