Shares in the Sky Network Television have plunged almost 7% after the Commerce Commission launched an investigation into the pay TV operator's contracts with internet service providers over fears they may reduce competition.
The commission's inquiry was sparked by another investigation which has ruled a joint venture between Sky and Television New Zealand will not reduce competition in the pay TV market.
In November last year, TVNZ entered into a joint venture agreement with Sky to launch a new low-cost subscription TV service known as Igloo.
The Commerce Commission received a number of complaints that the tie-up would lessen competition.
The regulator says the joint venture will make little difference to the level of competition and there is still scope for TVNZ and Sky to compete across a range of other pay TV services, including video on demand and pay TV over the internet.
However, the commission says the investigation did highlight potential difficulties that new players may face in entering the pay TV market.
It says it is aware about concerns that access to content and Sky's contracts with internet service providers may be hindering competition and has now launched a separate investigation.
Telecommunications Users Association chief executive Paul Brislen says the issue has become even more problematic as the telecommunications and broadcasting sectors converge.
"Some of the ISPs and the telcos that I've been speaking to lately about this issue, they do feel, rightly or wrongly, that Sky has somehow sewn up the market and that through its various clauses and contractual obligations has required them to deal only with Sky and not with any other content providers that they may wish to deal with," he says.
Mr Brislen welcomes the Commerce Commission's investigation, but says the market is changing so quickly in New Zealand, a wider examination is needed.
He says broadcasting is completely unregulated in New Zealand where as telecommunications is completely regulated and in effect the two industries are converging quite quickly on each other.
Mr Brislen says internationally broadcasting and telecommunications regulation is being merged into one unit.
He says in New Zealand companies which set up as ISPs are subject to quite a few regulations, where as broadcasters doing exactly the same thing are only subject to the general competition law that all New Zealand businesses have to deal with.
Mr Brislen says a much broader conversation is needed around broadcasting regulation in New Zealand.
He says there is no broadcasting specific legislation in New Zealand which is very unusual, there's no broadcasting regulator and there are very few laws around cross media ownership.
Sky Television says it is confident the arrangements do not breach the Commerce Act.
Sky's shares have fell 45 cents to $5.00 on Wednesday.