ComCom pushes out Sky/Vodafone merger decision on concerns tie-up may stifle competition

Sky Television's shares have slumped this morning on news that the Commerce Commission is delaying its decision on whether to approve the company's tie-up with Vodafone New Zealand.

The regulator is concerned the merged entity would use its muscle to squeeze out smaller rivals.

Sky shares were down 4.17 per cent this morning to $4.60 after the announcement.

The commission is in talks with the companies to extend the application timeframe to give them the opportunity to submit on its initial view, it said in a statement. At this stage, the commission isn't satisfied the deal wouldn't limit competition, saying while consumers may benefit from cheap services at first, other broadband and mobile providers could lose the ability to build scale in their businesses and become weaker rivals.

"Over time, this could reduce competition in these markets and potentially enable the merged entity to raise prices or lower the quality of service beyond what it would be able to without the merger occurring," the commission said.

Spark New Zealand Two Degrees Mobile have formally opposed the merger, saying the deal would adversely impact 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".

The commission appears less convinced, telling Sky TV and Vodafone that its concern comes from the substantial market power the merged entity would have "by virtue of its portfolio of content, including premium content such as live rugby", and whether it would make a standalone Sky TV product less attractive and shy away from reselling arrangements.

That could lead to the merged company's rivals losing customers to the point that "they no longer provide an effective constraint in a telecommunications market, allowing the merged entity to profitably raise prices of a telecommunications service above levels that would prevail in the counterfactual," the regulator said.

Sky TV's Fellet has been at pains to say he plans to resell the merged entity's services, however, the regulator says the merger would create fewer incentives to do so, and while it "may not go so far as to outright refuse to supply, it could instead make the terms sufficiently unattractive to ensure there was no take up."

Submissions on the regulator's letter of unresolved issues are due by November 11, and cross-submissions are needed by November 18. The commission will update the project timeline once a new decision date has been confirmed, it said.

Sky shares last traded at $4.80, above the $4.47 price they traded at before the deal was announced in June but still below the $5.40 issue price Vodafone would pay for a 51 per cent of the merged entity.