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Set-top box key in Sky, Vodafone merger

NZN 16/06/2016 Fiona Rotherham

The set-top box is emerging as a key driver of boosting engagement in pay-TV following the release of more details on the proposed $3.44 billion merger between Sky Network Television and Vodafone New Zealand, analysts say.

The extra detail highlights a clear change in direction for the merged group with a move from satellite delivery to an IP-enabled set-top box, using Vodafone capability as a key way to lift engagement in pay-TV and as the platform for its next generation premium offering, say First New Zealand Capital analysts. The set-top box may also drive the future of its plans for over-the-top (OTT) delivered content.

Earlier this week an independent appraisal report by Grant Samuel said Sky doesn't have an attractive future as a "pure" standalone pay-TV business in the longer term as it faces increased rivalry and a "fundamental deterioration" in its strategic position.

Sky directors have recommended shareholders vote on July 6 in favour of the deal which will give Vodafone Europe a 51 per cent share of the combined group.

Grant Samuel said the deal was fair, a view reiterated by First NZ's analysts, although they say this will ultimately be tested when they have an integrated model of the business incorporating Vodafone NZ's telco prospects.

Delivery of a new IP platform will require a significant degree of support and co-operation from the Vodafone Group, most likely centred around its two key fixed/pay-TV markets, Germany and Spain, the analysts say, in order to achieve the full $850 million in estimated synergies from the merger.

The merged companies plan to boost their bundled packages, including moving from a triple play - fixed-line voice, fixed-line broadband, and pay-television services - into a quad play by adding mobile.

Sky's share price is currently trading at $4.99 which compares to First NZ's 12-month target price of $4.58, including 30 cents per share attributed to likely synergy benefits from the merger.

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