2degrees is to be acquired in a $1.7 billion deal that will see the telco merge its assets with that of New Zealand fixed-line subsidiary Orcon Group.
The Commerce Commission met its March 15 deadline to approve the deal and said it had considered the potential impact of the merger on competition in retail and wholesale telecoms markets.
“The focus of our enquiries was on wholesale and retail competition in broadband and fixed voice and mobile services. The evidence before us indicates that the merged entity will continue to face strong competition from existing competitors, including Spark and Vodafone,” said commission deputy chair Sue Begg.
“While the transaction will result in the vertical integration of 2degrees’ mobile network with the largest mobile virtual network operator (MVNO), Vocus, we do not consider the transaction will significantly change the incentives of network operators to grant access to MVNOs.”
MVNOs are hardly thriving in NZ, but it seems their existence was a primary concern for the regulator.
Trilogy International and minority partner Tesbrit BV will sell 100% of their equity in 2degrees to the newly established entity Voyage Digital (NZ) Limited, a venture between Macquarie Asset Management and Aware Super, the owners of Vocus Group and its NZ subsidiary Orcon Group.
Orcon Group, previously known as Vocus NZ, comprises the broadband retail brands Orcon, Slingshot, Flip, and Stuff Fibre.
The new firm will be known as 2degrees, with Vocus NZ chief executive Mark Callander appointed CEO.
The deal also includes Vocus’ electricity unit formerly called Switch Utilities.
“This outcome recognises that the merger will enhance competition and provide benefits to Kiwis and Kiwi businesses,” said Callander. "The combined offering of Orcon and 2degrees positions the business as a strong third player in the New Zealand telecommunications industry.
“Under the 2degrees brand, Kiwis will have access to mobile, fixed line, and wireless broadband services as well as competitive energy services.
“While we await further regulatory approvals, both companies continue to drive their businesses forward, delivering quality services and support for all customers.”
Current 2degrees CEO Mark Aue is expected to leave the firm after a period.
Combination
The combined assets of both organisations, NZ's third and fourth-largest telcos, will give 2degrees about 19% of NZ’s mobile subscribers and about 20% of its fixed-line subscribers, just 1% behind Vodafone’s 21%. Vodafone and Spark have 40% each of the mobile market according to the Commerce Commission. Neither rival telco formally opposed the merger.
Both 2degrees and Orcon Group were in conversations with retail investors last year about individual initial public offerings, the former shopped around by Jarden, Macquarie and Craigs Investment Partners, and the latter by Goldman Sachs, Forsyth Barr, and UBS.
Toronto-listed Trilogy planned an IPO for 2degrees to raise capital for network upgrades while Vocus Group was keen to offload NZ arm Orcon Group after it went private.
Both put proceedings on hold to pursue a merger deal with Orcon advised by the same firms it chose for its IPO, while 2degrees was advised by boutique investment bank Montarne Partners.
Experts have said they expect little change for customers of either company as the services they provide are likely to stay the same. But because the merged entity will be known as 2degrees, the fate of Orcon’s broadband brands is unclear despite the familiarity of monikers such as Slingshot.
The merger was approved despite a submission from wholesaler Chorus voicing its concerns.
On the mobile side, 2degrees launched 5G this month, two years after Vodafone and Spark, though the benefit to consumers is similar to its nationwide coverage – small.
