There has been a spotlight on merger activity in New Zealand’s telecommunications and media space over recent months. Two high-profile mergers were proposed, with the applicants in each case citing a need to keep up with challenging and rapidly commercial environments. However, in both cases the New Zealand Commerce Commission declined to approve the proposed mergers. The respective parties of both proposed mergers lodged legal appeals against the Commission’s decision – one of these appeals has since been withdrawn, while the other is to be heard in October.
Sky/Vodafone
On 22 February 2017 the Commission announced its decision to decline to grant clearance to a proposed merger of Sky Network Television (SKY) and Vodafone New Zealand (Vodafone).
In its determination, the Commission expressed particular concern with the ability of the merged entity to leverage its market power over premium live sports content to effectively foreclose a significant portion of telecommunications customers from its rivals. The Commission said that, “we cannot rule out a real chance that the merged entity would have both the ability and incentive to offer Sky Sport subscribers (and those thinking of subscribing to Sky Sport) bundles of pay TV, broadband and mobile services that are more attractive than they would otherwise be able to acquire.” The Commission thus concluded that, on the basis of the evidence before it, it had been unable to exclude the real chance that the proposed merger would be likely to substantially lessen competition in both the market for broadband services and the market for mobile services.
On 22 March 2017, SKY and Vodafone lodged an appeal against the decision in the High Court, arguing that the Commission was wrong to find that the merged entity would substantially lessen competition. In their appeal, the companies argued (among other things) that the Commission failed to properly consider the likelihood that the merged entity’s rivals would be able to compete effectively in the broadband and mobile services market and retain their customers without access to SKY’s premium sports content.
However, in a joint statement on 26 June 2017, SKY and Vodafone announced their decision to abandon their merger plans, as well as their appeal against the Commission’s decision, stating “SKY and Vodafone New Zealand will continue to work together to strengthen our commercial relationship for the benefit of the customers and the shareholders of our respective organisations.” True to their word, Vodafone and SKY have since offered various special “bundled” deals, including offering free SKY Sport for a year to new and existing customers who sign up to Vodafone Unlimited Broadband and home phone, and SKY Basic for 12 months.
Postscript: It has recently been reported that retail giant Amazon is preparing to bid for the next round of South African, New Zealand, Argentinian and Australian rugby broadcasting rights, which could cause a massive shake-up of New Zealand’s sports broadcasting industry. The reports caused SKY shares to drop to their lowest level in more than 18 years.
NZME/Fairfax
On 2 May 2017 the Commission announced its decision to decline to authorise a proposed merger between Wilson & Horton (NZME) and Fairfax that would have brought NZ’s two biggest newspaper networks and online news sites under common ownership. The resulting merged entity would have had a combined monthly reach of 3.7 million New Zealanders, with a news media business that would have included nearly 90% of the daily newspaper circulation in the country as well as a majority of the traffic to online news.
As the parties sought “clearance or authorisation,” the Commission’s decision-making process was two-fold. Firstly, the Commission considered whether it would give “clearance” to the proposed merger. The Commission must give clearance for a proposed merger if it is satisfied that the merger will not have, or would not be likely to have, the effect of substantially lessening competition in a market. In this case, the Commission found that the merger would be likely to substantially lessen competition in 10 NZ regions and thus declined to grant clearance. The NZCC then considered whether it could “authorise” the merger. Authorisation can occur where clearance is unable to be given but the proposed merger is found to have likely public benefits that outweigh the likely public detriments (a net public benefits test). In this case, the Commission found that the proposed merger failed the net public benefits test and thus could not be authorised.
The determining factor in the Commission’s decision not to authorise the proposed merger was the likely loss of “plurality”. Plurality refers to the diversity of voices and views in NZ news reporting; it safeguards against a concentration of influence over public opinion and political agenda. As such, it is considered important to a healthy democracy, which depends on the availability and exchange of a divergence of views. In the Commission’s press release on the decision, Chairman Dr Mark Berry, noted that “[the] merger would concentrate media ownership and influence to an unprecedented extent for a well-established modern liberal democracy. The news audience reach that the applicants have provide the merged entity with the scope to control a large share of the news consumed by a majority of New Zealanders.”
Essentially, the NZCC acknowledged the considerable public benefits (though economic efficiencies), as is orthodox. But they decided that those benefits were “trumped” by quality and plurality concerns. This raises several issues:
- If “quality” is part of substantial lessening of competition test, could there be double-counting?
- Does the NZCC have jurisdiction over plurality? NZ has clearly decided not to have separate cross media ownership rules, so should the NZCC become the de facto regulator when the legislature has chosen not to have such rules? Should it regulate “social policy?”
- Even if the NZCC has applied the test correctly, is it right in its conclusion on harm? Has it weighted this correctly against the efficiencies (roughly NZ$14M over 5 years)?
Against the above, the “public benefit” test is broadly framed. The NZCC made extensive use of expert media advisors, who identified significant reduction in plurality as an issue that would affect all New Zealanders, whether or not they consume news media. Two such advisors, Dr David Levy and Robin Foster, noted that there is a concern that without government intervention, the news media market may not always provide the range or variety of content which society needs and may place significant power in the hands of a select few players.
Public opinion on the Commission’s decision has varied, with particular focus on whether the Commission was right in putting such weight on the unquantifiable detriment of loss of plurality in the face of quantifiable benefits from the proposed merger (potentially up to around NZ$200 million over five years).
NZME and Fairfax disagreed with the Commission’s decision, and on 26 May 2017 filed an appeal in the High Court. A 10-day hearing has now been scheduled for 16 October 2017. In their notice of appeal, the companies argued that the Commission was wrong in several areas, including (among other things) taking plurality considerations into account – or at least attributing insufficient weight to evidence put forth by the applicants showing that plurality would not be adversely affected.
Matthews Law
8 September 2017