At risk: competition, net neutrality and the prospect of a fourth mobile network

Competition, net neutrality and the advent of a fourth mobile network are in danger if the Vodafone/SkyTV merger is given the green light by the Commerce Commission.

That’s according to many of the submissions opposing the merger which have been lodged with ComCom this month. There are 11 submissions from rival telcos and broadcasters, as well as public interest groups. A couple stood out for me – InternetNZ and Blue Reach.

InternetNZ is concerned that not only will the merger reduce competition; it will compromise net neutrality (the idea that all traffic is equal and should not be prioritized to suit commercial interests).  New Zealand law, as it stands, is not equipped to deal with net neutrality issues and if Vodafone/Sky did compromise net neutrality by, for example, zero-rating its content and imposing data caps on other OTT (Over The Top) content, an investigation would take 2 years to be resolved.

The organisation – and InternetNZ is a broad church representing not only users, but also service providers – is open to behavioural conditions being imposed on a Vodafone/Sky merger. The submission refers to the recent FCC decision in the US which put a number of conditions on the major cable company and telco merger between Time Warner, Charter and Brighthouse (I covered this decision in a previous blog). Unfortunately in NZ the regulator only has the power to say ‘yes’ or ‘no’ to a merger, it can’t impose conditions.

The other submission that caught my eye is from Blue Reach, a company owned by Malcolm Dick, who was previously co-founder and co-owner of CallPlus. He retained some spectrum when CallPlus and its various sub-brands were sold to M2 (who then on-sold the company to Vocus), and has plans to create a fourth mobile network.

Blue Reach is intending to become a wholesale business enabling both mobile and fixed wireless access, so its business case is dependent on healthy competition at the RSP end of the market. A merged Vodafone/SkyTV could dominate the online content market and as content is becoming a significant way to attract subscribers, competing RSPs would fail to gain traction.

Blue Reach, in common with other submissions, put forward the counterfactual (what the market would be like if the merger doesn’t proceed) that if it remained a stand-alone company then SkyTV would wholesale its content to all RSPs. This has been shot down by Vodafone in its initial response to the submissions:

However, Spark (and others) have now submitted that the transaction is anticompetitive, including because the merged entity will engage in anticompetitive bundling. But in doing so they have needed to argue for a wholly unrealistic counterfactual, in which SKY undertakes a massive change in business model to become an “enthusiastic wholesaler” of content – offering bespoke packages at cut-down prices so as to allow third parties to pick and choose what content they want to add to their own packages.  

Well, you could argue that SkyTV hasn’t needed create attractive wholesales packages to sell to lots of different RSPs because the majority of its subscribers receive content via satellite, a distribution network controlled by SkyTV*. With the roll out of Ultra Fast Broadband and the advent of 5G technology, subscribers will be ditching the satellite and getting their content via the internet. Indeed, this is the WHOLE POINT of the merger – SkyTV’s business model is disappearing with the advent of fast broadband and it needs to latch onto a new distribution channel, so it’s merging with the biggest telco in town!

Anyway, it’s good to see Malcolm Dick back in the game. Years ago CallPlus campaigned vigorously for Local Loop Unbundling and it certainly helps to have a long memory when it comes to telco regulation. Also, it’s exciting to think we might get a fourth mobile network in New Zealand. We certainly need more competition, as is pointed out in both the TUANZ and Blue Reach submissions; telecommunications in NZ has become a highly concentrated market. According to the latter, there are just three major players in fixed line (Spark/Vodafone/Vocus) and three in mobile (Spark/Vodafone/2degrees) controlling 95% of the market.

*Be interesting to know what spectrum SkyTV owns and what happens to both Vodafone’s and SkyTV’s spectrum if the merger goes ahead. It may be buried in the merger docs somewhere, but I haven’t seen any analysis of this aspect of the proposed merger so far.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s