Five months after expressing its initial concerns with the proposed merger of TPG and Vodafone, the Australian Competition and Consumer Commission (ACCC) has announced it will officially oppose the deal.
In a statement released (albeit accidentally), the Commission listed the potential effect on both mobile and broadband competition as its main concern, stating that the move would lead to further concentration in the Australian telecommunications market.
With the ‘Big Three’ telcos Telstra, Optus and Vodafone already controlling over 87% of the mobile market – and around 85% of broadband – a Vodafone-TPG merger would prevent TPG from becoming a serious fourth contender in both mobile and internet.
ACCC: pro-TPG network, anti-merger
The ACCC’s decision to block the merger is unsurprising, given that the consumer watchdog has long been in support of a fourth carrier network. After the merger was first announced in August 2018, ACCC chair Rod Sims discussed the Commission’s “preliminary concerns” over removing TPG as a potential fourth mobile network operator.
In April of 2017, TPG announced plans to build its own Australia-wide mobile network, establishing itself as a serious alternative to Telstra, Optus, and Vodafone. However, after partnering vendor Huawei was banned by the Federal Government from supplying 5G equipment to Australian providers, TPG scrapped the project completely.
Although plans for TPG to build its own independent network are officially on the back burner, the ACCC believes there’s still a chance the telco could eventually turn this around – unless the Vodafone merger goes ahead. Citing TPG’s existing mobile spectrum, fibre transmission network, and customer base as reasons why a mobile network could succeed, Mr Sims said that a future TPG network is likely to compete strongly against Telstra, Optus and Vodafone.
TPG’s ‘disruptive’ pricing and competitive products have historically been seen as a positive by both the ACCC and by telco industry observers. In addition, removing Vodafone as a broadband competitor may also impact the Australian market, due to the company’s huge brand recognition and customer base.
Overall, it’s understandable that the ACCC would push for a ‘Big Four’ mobile market, and move to block a merger that it believes will benefit shareholders more than Australian consumers.
TPG shares have lifted 3pc in early trade after tumbling 13.5pc yesterday after the ACCC blocked its proposed $15bn merger with Vodafone and as the telcos say they’ll take the competition regulator to court https://t.co/HfMJ4HftrB #ausbiz #mergers $TPM pic.twitter.com/CS3NM8gJRR
— Business Review (@aus_business) May 9, 2019
Vodafone to ACCC: see you in court
In response to the ACCC’s announcement, Vodafone has declared it will fight the decision in Federal Court. Vodafone Hutchison Australia CEO Iñaki Berroeta stated that, although the company respected the ACCC’s decision-making process, it remained ‘firmly committed’ to a TPG merger.
“VHA is an established mobile business with less than one per cent of the fixed broadband market, while TPG is the second largest fixed broadband player with no mobile network,” said Mr Berroeta.
“The merger would create an entity that can compete more aggressively in this highly competitive market than either VHA or TPG could on their own. It is disappointing that the ACCC does not see it this way.”
Mr Berroeta said that Vodafone’s decision to pursue the merger through the Federal Court won’t affect the telco’s day-to-day operations, and that it will be ‘business as usual’ for the company and for its customers. However, Vodafone and TPG will extend their merger agreement to 31 August, 2020, to give the Federal Court additional time to deliver a verdict.
TPG executive chairman David Teoh also confirmed that the company would back up Vodafone’s pursuit of legal action, telling the ASX that a merger would create a “vigorous and vibrant competitive force” and offer a legitimate challenge to Telstra and Optus’ overwhelming market control.
How will this affect customers?
If you’re a TPG or Vodafone customer, you’re unlikely to see a change in your service any time soon. With the proposed $15 billion merger still well over a year away – assuming it isn’t completely blocked by Australian regulators – both Vodafone and TPG will, in the meantime, continue to offer competitive mobile and broadband products (including mobile broadband and NBN services).
Although TPG’s proposed 4G and 5G mobile networks have been cancelled, Vodafone is still on track to roll out its own 5G service sometime in early 2020. As TPG currently uses Vodafone’s networks to supply mobile coverage, this upgrade will eventually reach TPG customers (even if the proposed TPG-Vodafone merger falls through).
Overall, while there’s a lot of telco drama surrounding the merger, it’s unlikely to mean the death of telecommunications competition in Australia. While a fourth network operator would be a welcome change, there are still plenty of smaller providers operating on Telstra, Optus and Vodafone’s mobile networks, and offering a viable alternative to the big-name brands.