ComCom examines issues with Connexa, 2degrees acquisition

The Commerce Commission has released a statement of preliminary issues relating to Connexa's application to acquire certain mobile telco infrastructure assets from Two Degrees Networks and 2degrees.

The statement lays out the main competition issues that the Commission believes are important in deciding whether or not to grant clearance to the proposed acquisition.

Its overarching decision will be to "give clearance to a proposed merger if we are satisfied that the merger is unlikely to have the effect of substantially lessening competition in a market."

The Commerce Commission's approach to examining these issues is aligned with the principles set out in its Mergers and Acquisitions Guidelines.

In addition, in line with the Commerce Act 1986, it assesses mergers and acquisitions using the "substantial lessening of competition test".

This test identifies whether an acquisition is likely to dramatically lessen competition in a market by looking at two aspects: What the state of competition is expected to be like if the acquisition goes ahead and what it will be like should the acquisition not proceed.

Its investigation focuses on horizontal, unilateral, vertical and coordinated effects that may arise from the acquisition, posing one question to explore per area.

For the unilateral effects, the Commerce Commission asks whether any loss of competition caused by the acquisition would allow the merged entity to make an unfair profit by raising prices or reducing its quality or innovation.

Further, the vertical effects consider whether the acquisition could give the merged entity or Spark (in its role as a shareholder of Connexa) the means and motive to foreclose rivals.

Lastly, the Commission examines the coordinated effects, asking whether the acquisition would alter conditions in the relevant markets to make coordination "more likely, more complete or more sustainable".

2degrees announced the pending sale of its passive mobile telecommunications tower assets to Connexa for NZD $1.076 billion in December 2022.

Under the terms of the transaction, 2degrees has entered into a 20-year agreement with Connexa (plus rights of renewal) to secure access to existing and new towers, with an additional tower build and co-location commitment of 450 sites over the next ten years.

2degrees will still continue to own the active elements of its network. This includes the radio access equipment, spectrum assets, and transmission and backhaul.

Although the Commerce Commission may choose to extend the date of its decision as its investigation continues, it is currently scheduled to decide on the application by March 7, 2023.

In the meantime, interested parties are invited to provide comments on the likely competitive effects of the proposed acquisition.

Submissions can be sent by email to registrar@comcom.govt.nz with the reference "Connexa/2degrees" in the subject line.

Any submissions should be received by close of business on February 13, 2023.