New Zealand’s Commerce Commission has blocked the proposed merger of Vodafone and Sky Network Television on competition grounds.

The two companies announced plans to merge the network operator’s mobile operations with its rival’s pay-TV business last June.

The NZ$3.4 billion deal would have created the largest converged operator in New Zealand.

However, the Commerce Commission said concerns it outlined to the two companies in October had not been resolved.

Dr Mark Berry, Chair of the regulatory body, said: “The proposed merger would have created a strong vertically integrated pay-TV and full service telecommunications provider in New Zealand owning all premium sports content.

“We acknowledge that this could result in more attractive offers for Sky combined with broadband and/or mobile being available to consumers in the immediate future.

“However, we have to take into account the impact of a merger over time, and uncertainty as to how this dynamic market will evolve is relevant to our assessment.”

Around half of all households in New Zealand have Sky TV, according to the Commission, and “a large number of those” are Sky Sport customers.

Berry added: “Given the merged entity’s ability to leverage its premium live sports content, we cannot rule out the real chance that demand for its offers would attract a large number of non-Vodafone customers.

“The evidence before us suggests that the potential popularity of the merged entity’s offers could result in competitors losing or failing to achieve scale to the point that they would reduce investment or innovation in broadband and mobile markets in the future.”

The Commission said it was particularly concerned about the impact on companies such as 2degrees and Vocus.

Vodafone put out a statement saying that it “noted the decision”.

The operator is also in discussions about merging its operations in India with the Aditya Birla Group.

[Read more: Vodafone hit by India, UK woes in the last quarter]

Sky, meanwhile, is set to merge with Twenty-First Century Fox.

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