Scoop has an Ethical Paywall
Work smarter with a Pro licence Learn More

Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Sky TV shares drop after market dominance questioned

Monday 31 October 2016 01:03 PM

UPDATE: Sky TV shares drop after regulator questions market dominance in Vodafone merger plan

(Recasts with market reaction, adds investor voice)

By Paul McBeth and Jonathan Underhill

Oct. 31 (BusinessDesk) - Sky Network Television shares fell to a four-month low after the Commerce Commission said it was concerned a merger with Vodafone New Zealand could give the enlarged group too much market power.

The stock dropped almost 4 percent to $4.60 after the antitrust regulator said it was in talks with the companies to extend the application timeframe to give them the opportunity to submit on its initial view. At this stage, the commission isn't satisfied the deal wouldn't substantially reduce 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, it said

"The Sky TV management team is very adept at dealing with these types of challenges," said Shane Solly, director at Harbour Asset Management. "But for investors, it's a red flag that the New Zealand Commerce Commission is willing to challenge commercial arrangements."

He said Sky TV has historically been neutral about partnering with other companies to bundle up its services, as it currently does under commercial arrangements with Vodafone. "The concern is that it doesn't become more exclusive."

Spark NZ and 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".

Advertisement - scroll to continue reading

Are you getting our free newsletter?

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.

But the commission said that 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 told 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 companies' 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 Nov. 11, and cross-submissions are needed by Nov. 18. The commission will update the project timeline once a new decision date has been confirmed, it said.

Vodafone has agreed to pay $5.40 a share for 51 percent of the merged entity.



© Scoop Media

Advertisement - scroll to continue reading
Business Headlines | Sci-Tech Headlines


Join Our Free Newsletter

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.