NZCC 1 and 2 Vodafone Europe B.V. and Sky Network Television Limited
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ISSN 1178–2560 Decision Series Project nos. 11.04/16008 and 16009 Public version Determination Vodafone Europe B.V. and Sky Network Television Limited [2017] NZCC 1 Sky Network Television Limited and Vodafone New Zealand Limited [2017] NZCC 2 The Commission: Dr Mark Berry Dr Stephen Gale Dr Jill Walker Anna Rawlings Summary of An application from Vodafone Europe B.V. seeking clearance to applications: acquire up to 51% of the shares in Sky Network Television Limited and an application from Sky Network Television Limited to acquire up to 100% of the assets and/or shares of Vodafone New Zealand Limited. Determination: Under section 66(3)(b) of the Commerce Act 1986, the Commerce Commission declines to give clearance for the proposed acquisitions. Date of determination: 22 February 2017 2854088 2 Confidential material in this report has been removed. Its location in the document is denoted by [ ]. 2854088 3 CONTENTS ACRONYMS AND ABBREVIATIONS ...............................................................................................5 EXECUTIVE SUMMARY ................................................................................................................7 THE PROPOSED MERGER ........................................................................................................... 11 Summary of the proposed merger .............................................................................................. 11 Applicants’ rationale for the proposed merger .......................................................................... 11 Our decision ................................................................................................................................ 12 OUR FRAMEWORK .................................................................................................................... 12 The substantial lessening of competition test ............................................................................ 12 When a lessening of competition is substantial ......................................................................... 13 When a substantial lessening of competition is likely ................................................................ 14 The clearance test ....................................................................................................................... 14 The meaning of ‘in doubt’ ........................................................................................................... 15 Applying the clearance test in this case ...................................................................................... 15 KEY PARTIES ............................................................................................................................. 17 Vodafone ..................................................................................................................................... 17 Sky ............................................................................................................................................... 18 Other TSPs ................................................................................................................................... 19 Other providers of TV content .................................................................................................... 21 Relationship between Sky and other TSPs .................................................................................. 22 INDUSTRY BACKGROUND .......................................................................................................... 23 Introduction ................................................................................................................................ 23 Broadband ................................................................................................................................... 23 Mobile services ............................................................................................................................ 28 Pay TV and FTA content .............................................................................................................. 30 INDUSTRY TRENDS/CONTEXT OF THE TRANSACTION ................................................................. 36 Improvements in broadband quality and availability ................................................................. 37 Improved quality of the mobile network .................................................................................... 40 Growth of internet-based broadcasting (OTT) ............................................................................ 42 Increased consumption of broadband and mobile data ............................................................. 44 Convergence of telecommunications services and pay TV ......................................................... 47 Competition between bundles containing telecommunications products ................................ 49 HOW THE MERGER COULD SUBSTANTIALLY LESSEN COMPETITION ............................................ 54 Introduction ................................................................................................................................ 54 Bundling theory of harm ............................................................................................................. 55 Other issues raised ...................................................................................................................... 57 THE LIKELY STATE OF COMPETITION WITH AND WITHOUT THE MERGER .................................... 59 2854088 4 THE FACTUAL – ‘WITH THE MERGER’ ......................................................................................... 59 Applicants’ submissions .............................................................................................................. 59 Third party submissions .............................................................................................................. 60 Analysis of the evidence .............................................................................................................. 61 THE COUNTERFACTUAL – ‘WITHOUT THE MERGER’ .................................................................... 64 Applicants’ submissions .............................................................................................................. 64 Third party submissions .............................................................................................................. 66 Analysis of the evidence .............................................................................................................. 67 MARKET DEFINITION ................................................................................................................. 72 Our approach to market definition ............................................................................................. 72 Applicants’ submissions .............................................................................................................. 72 Third party submissions .............................................................................................................. 72 Analysis of the evidence .............................................................................................................. 73 COMPETITION ANALYSIS ........................................................................................................... 76 The merged entity’s control of premium live sports content ..................................................... 77 The potential for the merged entity to foreclose a substantial customer base from rival TSPs through bundling ................................................................................................................ 87 Whether a significant number of customers would switch to the merged entity ...................... 96 Broadband services market: would a significant number of customers be likely to switch? ..... 96 Mobile services market: would a significant number of customers be likely to switch? ......... 108 Broadband: would rival TSPs rendered competitively less effective? ...................................... 116 Mobile: would rival mobile TSPs be rendered competitively less effective? ........................... 133 DETERMINATION ON NOTICE OF CLEARANCE........................................................................... 141 ATTACHMENT A: TSP PROMOTIONAL ACTIVITY, 2014-2016 ...................................................... 142 2854088 5 Acronyms and abbreviations 2degrees Two Degrees Mobile Limited 5G 5th generation mobile networks ADSL Asymmetric digital subscriber line Applicants Vodafone and Sky Applications The two applications for clearance of the proposed merger received by the Commission under s 66(1) of the Commerce Act 1986 from Vodafone Europe B.V. and Sky ARPU Average revenue per user AFL Australian Football League Axiom Axiom Economics Blue Reach Blue Reach Wireless Limited Broadband For the purposes of this Determination, includes data services giving high speed access to the internet, and fixed voice services CAPEX Capital expenditure Castalia Castalia Limited Chorus Chorus Limited Commission Commerce Commission Covec Covec Limited EBIT Earnings before interest and taxes EBITDA Earnings before interest, taxes, depreciation and amortisation EPL English Premier League Freeview Freeview Limited FTA Free-to-air FWA Fixed wireless access HFC Hybrid fibre-coaxial IDC IDC Research Inc. IPTV Internet protocol TV