Sky and Vodafone executives answer questions on the proposed merger

This week, Sky and Vodafone held a joint press conference announcing the proposed merger of the two businesses, which will see Vodafone’s head office take a 51 percent stake in the newly formed entity.   

The new company, led by current Vodafone chief executive Russell Stanners, will have nine directors, five of which will be existing Sky directors and four of which will be existing Vodafone directors.

The transaction is expected to be completed by the end of 2016.

At the press conference, held on Thursday, Stanners sat alongside Sky chief executive John Fellet, Sky chief financial officer Jason Hollingworth and Sky chairman Peter Macourt, during a presentation that saw the executives outline their motivations and plans for forming the joint company.

For the most part, the initial presentation provided a summary of the investor document made available online.

As is often the case with events of this nature, the most interesting discussion happened after the initial announcement when the floor was opened to questions from journalists.

And in this instance, it helped to shed some light on what the proposed merger will actually entail for the businesses and for customers.

Here’s a rundown of the some of the best questions asked by the various journalists in attendance:  

Were there any tax benefits in choosing to merge the company by having Sky buy Vodafone and then having Vodafone take a 51 percent stake?   

Hollingworth: There are no tax issues around the approach. That certainly wasn’t a driver for it. We’re a listed company and this was just a sensible way to put the company together.   

What will the new company be called?

Stanners: We haven’t got to a name, and both brands will continue in the marketplace. The actual company name is something we’ll get to at a later stage.

Given that there’ll be job cuts across the two entities, can we expect some job cuts as they merge?

Hollingworth: There are rationalisations in the net benefits, but they aren’t significant.

Stanners: Both companies are very complementary, and the reason we’re coming together is because the capabilities of both businesses … There isn’t a lot of overlap between the two businesses, so it’s not an important part of the overall plan.

Do you have a figure on job losses?

We haven’t got to quantifying the number. We have six months to go until the approval process.

What are some of the expenditures that will be incurred as the companies merge?

Hollingworth: System integrations are a big piece of that, so we’re trying to leverage some of the Vodafone scale for Sky is a big part of that … There are also some opportunities in terms of the technology platforms that Vodafone runs and that Sky is keen to build on in the future. A big benefit of the deal is that we will be able to access that.   

Why have you only struck a deal now?

Fellet: We’ve actually been working together for over ten years. And during that time, opportunities fell into three piles: sometimes they worked great for Vodafone, but they didn’t really suit me; other times, they were great for me but they didn’t really serve as a value-driver for Vodafone; and so, we just ended up doing the middle pile. Now, we have the opportunity to attack all three piles.

Stanners: We look at the evolution of our respective industries and we absolutely see convergence happening. We see content as a key driver of high-speed broadband networks, and high-speed broadband networks are part of the distribution equation for content around the world. This is about positioning a new business that has the capabilities to lead and shape the future and deliver some really exciting offerings to our clients. There are a whole raft of possibilities we can bring together with the capabilities we have.

Since you are already cross-selling packages, how will this actually change things, if at all?

Stanners: We will be using content better across mobile networks, we will be enhancing how we deliver over Fibre [Ultra-Fast Broadband], and looking at how we can bring together more competitive packages, as well as a whole raft of other things.

Fellet: If you look around the world at where pay TV companies have done deals with telecommunications companies for a triple play, it just doesn’t work as well as when it’s all brought under one roof.

How do you see this playing out for consumers in the short term?

Stanners: It’s all about innovations, new services and being more competitive and introducing a whole lot of new options for consumers. There are some exciting things that we think we can deliver to customers.

Can people who are both Vodafone and Sky customers expect new deals?

Stanners: We’re already really good at doing that, and we will continue to do more of that. I think what you’ll see is more innovation, with things coming to market in new formats across new devices and new networks.

What’s a triple play versus a quad play? [Fellet mentioned several times that the merger would give both companies access to a quad play]

Fellet: The difference is just adding more mobile phone opportunities. A triple play would typically be voice, internet and video, and now with a mobile phone it becomes a quad play.

Is Sky still going to be available to everyone?

Fellet: Russell can continue to wholesale his services to other companies and I can continue to wholesale my content to other ISPs and telecommunications companies. We have a deal right now with 2degrees as an example.

Stanners: Like I said before, 70 percent our revenue comes from wholesaling to our competitors and the nature of our industry, and John’s industry, alongside what’s happening in the future, means it’s in our interest to continue wholesaling content.

Would you even sell to Spark?

Stanners: Absolutely, if they wanted to.

Fellet: I’ve been trying to sell to Spark for the last five years.

How do think this will help you compete against both local and international players?

Fellet: I think having the expertise of one of the biggest telecommunications companies on the planet will certainly help in getting us on more devices. Even though we’re a big player in this market, we’re kind of small on a global basis.

Stanners: Our industry is hyper-competitive. A lot of our best partners are also our competitors, so hopefully what we’re creating here is a more competitive entity that offers a whole host of services that can compete with both local and international competitors.

Will there be exclusive content for Vodafone subscribers?

Stanners: No.

Fellet: We won’t do any exclusivity deals. We will continue to sell to everybody. It’s less about content and more about how you push it and package it together.

Chairman: It goes to what John was saying before, in that it’s more about pursuing opportunities. You’re not worried about whether the benefit falls to the telco or the media company. You don’t have to concern yourself with that. It’s a shared interest.

Stanners: Today, we’re still in partnership with Netflix and the combined group will continue to offer more than one content source to customers. Obviously, we fundamentally believe in the premium content portfolio we have and there are lots of opportunities in terms of how we can bring that in different formats and packages to all our customers. 

What does this mean for your bundled packages?

Stanners: We already do bundle up packages of fixed and broadband services with Sky and mobile packages. I think what we have now is the opportunity to be more sophisticated and actually create more attractive propositions for our consumers.

Will this remove the need for satellites, particularly in areas that have access to fibre?

Fellet: We’re locked into our current satellite deal until 2021, so there’ll be no movement ahead of that but one of the advantages of this deal is that it gives us access to Vodafone’s expertise in UFB and we certainly have plans to roll out internet-only packages to homeowners.

Stanners: We do deliver the current Sky content over Fibre networks and we think there’s great opportunity to continue enhancing that. So customers have a choice. They can either have delivery by the satellite or via the fibre network. When you think about fibre high-speed networks, New Zealand is leading around the world. It offers a lot of exciting opportunities and that’s where a lot of the value can come from.

Is this a true integration of the businesses, given that Fellett and Stanners will remain in charge of their respective companies?

Stanners: We’re one business with two brands. The two businesses are very complementary, which in a way means that they’re very different. If you look at John’s team and the content they do there, we don’t have anything like that at Vodafone today. So when you bring them together, they’re brought together to deliver the best value to shareholders and to customers. That involves a level of integration that’s appropriate. It’s not that we’re not integrating; it’s that we’re doing it in a way that’s appropriate and needed to go forward as a single company.

Fellet: If you go to Comcast or BSkyB and look at their organisational chart, it’s very much the same as what we’ve proposed here. You have someone in charge of content and you have someone in charge of the telecommunications group as well as a group CEO. This is identical to what we’ve proposed going forward. 

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