The Commerce Commission gave its preliminary view today that, based on information currently available, it would authorise TeamTalk Limited to acquire Telecom New Zealand Limited's trunked mobile radio business, which trades under the name "Fleetlink".

Commission Chair John Belgrave said that the Commission's preliminary view is that public benefits from the proposal outweigh its detriments to competition by between $3.6 million and $10.7 million over five years.

The Commission published its draft determination today giving its preliminary view and asking nine questions. Interested parties have until April 7 to make submissions on the draft determination. Experts hired by interested parties have until April 14 to make submissions and the Commission expects to make its final decision by May 17.

In its application, TeamTalk claimed that the proposed acquisition would bring two main benefits:

  • removal of the duplication that currently occurs with two national networks, and
  • increased incentives and ability to develop the national mobile radio network to provide alternative competition to cellular phones.

It is the view of the Commission that if the acquisition went ahead, detriments could arise from TeamTalk's potential ability to:

  • raise prices above the competitive level
  • produce services less efficiently
  • reduce the quality of its services, and
  • become less innovative.

In reaching its preliminary view, the Commission concluded that the public benefits arising from the proposed acquisition outweigh such detriment.

Background

The Commerce Act prohibits business acquisitions that result in dominance being acquired or strengthened in any market.

Parties can apply for a clearance, which will be granted if the Commission is satisfied that dominance is not acquired or strengthened. The Commission declined to clear TeamTalk's proposal to acquire the Fleetlink business on December 3 last year (Decision 377).

A business acquisition that would otherwise be prohibited can still be authorised if the Commission is satisfied that public benefits from the proposal outweigh its detriments to competition. TeamTalk applied for an authorisation on February 21.

The questions asked by the Commission in its draft determination are:

Q1 The Commission seeks comment on the appropriateness of the counterfactual. Comment on the likely development of the market, should this proposal not proceed, the extent to which mobile radio networks are likely to be developed, and any other relevant points is sought.

Q2 The Commission seeks comment on the potential for losses of allocative efficiency that might arise from the proposal. Industry views on the following points would assist the Commission in its assessment of this issue:

- the extent to which prices might be expected to rise,

- the market segments and geographic areas in which prices might be expected to rise most (or the least),

- the extent to which increasing charges for functions such as group calling might reduce demand for TMR services (measured either in handsets, or minutes of airtime demanded), and

- the extent to which such discriminatory pricing practices are necessary to maintain the economic viability of the network.

Q3 The Commission seeks the views of interested parties on the potential for the proposed combined entity to suffer from an erosion of productive efficiency over time. Comments are invited on whether the combined entity is likely to:

- be under sufficient pressure from the remaining competition to maintain efficiency, and

- undertake additional investment to gain profits that are currently unavailable. The Commission invites comments on the points raised above, and any other relevant points.

Q4 The Commission seeks the views of interested parties on the potential for the proposed combined entity to reduce service quality over time. In particular the Commission seeks comment on whether:

- the combined entity would be in a position, and have an incentive, to significantly lower sales and service quality,

- the combined entity would be in a position, and have an incentive, to significantly reduce network service quality.

The Commission invites comments on the points raised above, and any other relevant points concerning product or service quality.

Q5 The Commission seeks comment on the extent to which:

- the remaining competition from other mobile radio operators and cellular might ensure continued development of the business, and

- the combined entity will have an improved incentive to compete with other products, such as cellular, compared with the counterfactual, where it is claimed that Telecom will have limited incentives to develop the business, while other operators will have limited ability to develop the mobile radio business.

The Commission invites comments on the points raised above, and any other relevant points that may assist it in considering the impact of the proposal on the dynamic efficiency of the mobile radio industry.

Q6 The Commission seeks comment on the likely extent of cost savings that could be realised from the proposed amalgamation. The Commission seeks comment for the potential for cost savings in the areas of sales and service, and network maintenance functions. The Commission seeks further comment on the potential for parallel operation of the current Telecom and TeamTalk networks to be feasible, and the potential for this to release assets that can be used to support further subscriber growth.

Q7 The Commission seeks comment on the extent to which it should consider claims of new revenue growth public benefits. Information that might assist the Commission in this would include:

- comment on the extent to which any growth that could be generated would be completely new business versus business gained from other products, and

- the potential for new services to create additional profits for the combined entity.

Q8 The Commission seeks comment on the extent to which it should consider the additional choice offered to business cellular customers a benefit to the public.

Q9 The Commission seeks comment on whether the issues that have been considered in this draft determination provide a reasonable summary of the issues of which it should be aware before making a final decision on this application. The views of interested parties are sought on any additional issues that might be of relevance when considering the benefits or detriments to the public that might result from the proposed acquisition, should it proceed.

Media contact: Commerce Act Manager Geoff Thorn

Phone work (04) 498 0958, cellphone 021 661 104

Senior Advisor Communications Vincent Cholewa

Phone work (04) 498 0920