One New Zealand's application to buy Dense Air to pick up its Spectrum holdings is with the Commerce Commission.

The telco applied to the Commerce Commission seeking clearance for the Deal. This is interesting. One NZ does not need to apply for clearance. It could have gone ahead with the deal first and waited for a reaction from the regulator.

By applying, One NZ is acknowledging there may be regulatory barriers to the deal. It's a smart move to get them out of the way before consummating the deal.

Uncomplicated

The deal itself is not that complicated. One NZ wants to buy Dense Air to gain control of two 35MHz blocks of 2600MHz spectrum. Dense Air's management rights have five and a half years left to run. They renew in 2028.

These blocks of spectrum are not currently used. They have a history that dates back to Craig Wireless, then Malcolm Dick.

Spectrum in this band is ideally suited for mobile networks. The 2600MHz band is popular with carriers for LTE networks.

"An extra motorway lane"

One NZ has said it plans to use the extra spectrum to boost its 5G network. More spectrum means carrying more traffic. In its November 3 media release One NZ quotes CEO Jason Paris saying: “Think of it like adding an extra lane on the motorway.”

2degrees has publicly voiced its objection to the deal. The company says it sees the proposed transaction as a material threat to its growth and its ability to disrupt the market to the benefit of consumers.

When asked, Spark, the other telco with skin in this game, declined to comment on the proposed deal. No doubt it will watch with interest.

The regulatory issue in this case is whether the deal will substantially lessens competition in the market. That's my emphasis because the word substantially has a lot of heavy lifting to do.

At first sight, the deal may not substantially alter the competitive landscape, after all, the three main carriers all have enough spectrum for viable 4G and 5G networks. The amount of spectrum changing hands is only a small fraction of the total mobile spectrum in play.

Spectrum holdings key to competition

However, spectrum holdings have been the key to market competition in the past. Even a small imbalance between holdings could give a carrier a competitive advantage or disadvantage.

2degrees points out that despite years of progress, it continues to have what it calls a spectrum deficit.

"New Zealand is in the position where we have three highly competitive networks when you look at towers, technology, and backhaul. It has been a long road to get to this position of network equivalence but 2degrees continues to have a spectrum deficit.

Disparity

"Spectrum disparity between providers will hinder a provider’s ability to grow market share across different products throughout New Zealand and be detrimental to consumer choice and competition."

In a roundabout way, One NZ makes a similar point in its press release announcing the proposed deal. "Paris says the purchase of new spectrum will increase network capacity, benefitting customers across the motu".

And later: "Additional capacity means increased availability for fixed wireless access at faster download and upload speeds".

2degrees says "Any transaction that enhances spectrum disparities and causes competitive harm must be scrutinised by the Commerce Commission, with input from key relevant parties."

That is what is happening.

2degrees says it wants to make sure when spectrum changes hands it does so appropriately. That is what it fears may not be happening with the acquisition.

Regulatory brief

The problem here is that fairness or appropriate transfer of spectrum rights is not within the Commerce Commission's regulatory brief, at least not in the context of providing clearance for the deal. As mentioned earlier the test is whether the deal substantially lessens competition.

2degrees is on firmer ground when it mentions more specific matters. The company says:

"Spectrum remains fundamental to effective competition in current and future wireless markets.

"2degrees is at a historic spectrum disadvantage relative to other mobile network operators. This includes both ‘sub-1GHz’ bands and ‘mid-band’ frequencies, which have different coverage and performance characteristics.

2degrees has built a world-class network which gives us equivalence in physical infrastructure, and it’s also important that we have equivalence in spectrum as we continue to grow, to ensure competition and innovation for customers is not constrained."

Which is an argument that by moving the market away from spectrum equivalence, the One NZ - Dense Air deal lessens competition. It leaves the question of whether this is substantial or not.

2degrees goes on to say:

"Recent decisions by the government to allocate the same amount of important 5G (3.5 GHz) spectrum to operators is a great step towards supporting ongoing strong, nationwide competition. It will bring significant benefits to regional and rural New Zealand as operators roll out new connectivity to these areas. We don’t want to see these gains undermined."

Again, the is a good argument linking spectrum holdings to competition.

To sum up, let us reuse Paris' metaphor, if the Commerce Commission decides the Dense Air deal amounts to adding one more motorway lane to a road that is already 10 lanes wide, it won't substantially lessen competition. If it amounts to adding a third lane to a two-lane road, then it is.