UPDATED 4.08PM Consumers are being warned of a 'worst-case scenario' if a potential merger between Sky and Vodafone goes ahead.

LISTEN ABOVE: Media commentator Paul Spain talks to Rachel Smalley

Sky TV has announced it's planning to buy Vodafone New Zealand for $3.44 billion.

In a statement to the NZX, Sky says it plans to issue shares, giving Vodafone a 51 per cent interest in the the joint company.

The cash component will be $1.25 billion, and the new shares will be issued at $5.40 per share.

The companies say together they'll have the ability to offer New Zealand's best entertainment content across all platforms.

Telecommunications Users Association of New Zealand chief executive Craig Young said the worst possible outcome would be people having to be with Vodafone, to get Sky.

He points out there's a lot of content on Sky that's important to many New Zealanders, most particularly sport.

Mr Young said it would be considerable market power if the two became locked together.

But Vodafone Chief Executive Russel Stanners said that won't be the case.

"No, no. Absolutely not. Today, you can buy services as a bundle or you can buy them individually and that will continue."

The merger will result in some job cuts, but Mr Stanners said that's a while away and they haven't looked at that yet.

Sky TV chief executive John Fellet said the merger opens up options and allows them to become more competitive.

He said they will be able to take advantage of Vodafone's expertise in Ultra Fast Broadband and said they have plans to roll out internet only packages to home owners.

Gorilla Technology's Paul Spain told Rachel Smalley a merger could provide more services for its consumers but it could also create less competition within the market and and as a result, rise product prices.

"It might be quite good for the consumer when we look at Spark giving away Lightbox. You might find that Vodafone look at doing something similar. I'm not sure it will be quite good in the long term."

Sky's directors have unanimously recommended that the company's shareholders vote in favour of the merger.

Meanwhile, Spark is in damage control mode after a sharp drop in shares following the announcement of the merger.

Spark says it has been competing successfully with a tightly integrated partnership between Vodafone NZ and Sky TV for a couple of years now.

Managing Director Simon Moutter said Vodafone has been bundling and deeply discounting Sky TV products, while Sky actively resells Vodafone broadband - but said the real competition is with global players like Netflix, YouTube and Apple.

However the market has reacted strongly, with Spark shares dropping 13 cents today - they're currently trading at around $3.35.