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First thoughts on Commerce Commission Vodafone-Sky ruling

The Commerce Commission declined the proposed Vodafone-Sky merger saying it would decrease competition in telecommunications.

That seems right1. The important thing is that Sky has all the important rights tied up. It owns or sub-licenses all the popular sporting codes. Most of all it has the rights to Rugby.

At the moment Sky has a deal with Vodafone to sell its services over broadband as a bundle. But in practice anyone with a broadband account can buy services from Sky.

Vodafone says it doesn’t plan to stop Sky selling to all comers, but that’s not a legal obligation. It could have made a formal undertaking to continue the practice, but did not.

Therefore, Vodafone could at any point decide that its customers get access to some or all channels. The moment, say, an important sporting fixture, becomes a Vodafone exclusive, then all other broadband companies would be in trouble as their customers switch telecommunications service provider.

This will be twice as effective if exclusive Sky material is distributed to Vodafone mobile phones.

The temptation to do this will be great. It is also why Sky was worth what Vodafone was prepared to pay.

After all, what is the point of having a monopoly if you can't milk it?

Clearly the other telcos are terrified. A little over half of all homes have Sky, there’s the potential for them to be locked out of those customers. This applies to both broadband and mobile.

There’s also vertical integration. Telcos love vertical integration. It is anti-competitive.

The whole point of the government building the UFB fibre network and splitting Chorus from the old Telecom was to break vertical integration.

Having said all that, TV over broadband, especially over fibre, is, in general, a good thing.

That would have been a positive. It would be good if Sky could find another way to move all its business online.

A last point worth mentioning. The Commerce Commission can only say yes or no to a proposal. Overseas regulators, like, say, the ACCC in Australia, can impose conditions. The Commerce Commission can not. So it was not an option for the regulator to say to Vodafone “you can buy Sky, but must continue selling video services to all comers”.

Had that been the case, the ruling may have gone differently.



  1. Right in the sense that a merger would decrease telecommunications industry competition. Let's not pass rash judgement on the Commerce Commission decision.  



First thoughts on Commerce Commission Vodafone-Sky ruling was first posted at billbennett.co.nz.

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