Commerce Commission commences scrutiny of Vodafone-Sky merger plans

The move follows receipt of formal applications for Commerce Commission clearance, lodged by Sky and Vodafone on 29 June

The Commerce Commission has commenced its assessment of the planned merger of Vodafone and Sky, with the issue of a preliminary issues paper. The move follows receipt of formal applications for Commerce Commission clearance, lodged by Sky and Vodafone on 29 June.

Under the provisions of the Commerce Act 1986, the Commission is required to assess mergers and approve them only if it considers they would not substantially lessen competition in a market.

Much of its Statement of Preliminary Issues is devoted to setting out the processes the Commission will go through, and is not specific to the Sky Vodafone merger. However the Commission does identify a number of issues specific to the proposed merger to which it will give consideration.

In the statement the Commission says will be focusing on questions that include “unilateral effects” — “would the merged entity be able to raise prices or reduce quality by itself?” — and vertical and conglomerate effects (“would the merged entity be able to engage in behaviour that either forecloses rivals or otherwise renders them less able to compete?”).

“The second of these issues will be the main focus of our investigation,” the Commission said.

Vodafone and Sky have submitted that there is no meaningful overlap between their respective offerings, but the Commission stated: “Although this appears to be the case, we will consider whether the parties would become more meaningful competitors without the merger. For example, we will consider whether, without the merger, Vodafone might start providing content on a stand-alone basis (ie, not in conjunction with Sky), which would compete with one of Sky’s offers. We will also consider whether, without the merger, Sky might start providing telecommunications services on a stand-alone basis (ie, not in conjunction with Vodafone).”

The Commission adds: “If such expansion would be likely without the merger, then any potential competitive constraint from this would be lost as a result of the proposed merger. This could result in higher prices or decreased service levels relative to the without the merger scenario.”

The Commission will also consider whether Sky’s broadcasting rights to important sports content could be used to leverage market power in the merged entity. As part of this, it will look at the changes in the delivery of content, such as the increased use of the Internet.

The Commission is scheduled to make a decision on whether or not to give clearance to the merger by 11 November 2016, but says the date could change as its investigation progresses.

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