Federal Court approves Vodafone – TPG merger

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Big news for the Australian telco industry: despite the best efforts of the Australian Competition and Consumer Commission (ACCC), the Federal Court has given the green light to the proposed merger of Vodafone and TPG.

Justice John Middleton has rejected the ACCC’s attempt to block the $15 billion telco deal, stating that the consumer watchdog’s fears of reduced competition and an even more concentrated Australian telco market are unfounded.

With the law now on Vodafone and TPG’s side, the two telcos have the go-ahead to combine their customers and resources to take down industry rivals Telstra and Optus. However, the ACCC does have four weeks to lodge an appeal.

ACCC: more networks, more competition

Vodafone and TPG first announced plans to merge back in August of 2018, and have since bought over $260 million dollars in mobile spectrum together under the name Mobile JV. Original plans outlined that Vodafone shareholders would own 50.1% of the joint company, with TPG controlling 49.9%.

Unsurprisingly, the ACCC has expressed immediate concerns with the proposal. Prior to the planned merger, TPG was preparing to build its own nationwide mobile network designed to compete with Telstra, Optus, and Vodafone’s respective mobile coverage.

The ACCC was very much for TPG positioning itself as a serious fourth contender for the telco throne, agreeing that a new mobile network would be a positive for Australian consumers. But in a disappointing twist, TPG scrapped its network build after partner Huawei was banned from supplying 5G equipment to Australian companies.

Without the option of transitioning to 5G, a new 4G network would eventually be left behind by competing 5G coverage from Optus, Vodafone and Telstra. Deciding that the investment was no longer commercially viable, TPG cancelled the roll out, and renewed its focus on a Vodafone merger.

Vodafone: merger means ‘more choice and value’

The ACCC announced plans to officially oppose the merger in May of 2019, spurring Vodafone and TPG to take the fight to the Federal Court. Now that Justice Middleton has ruled in favour of the telco deal, it’s unclear as to whether the providers will re-assess their previous merger date of 31 August, 2020.

Despite the ACCC’s concerns, Vodafone has maintained that the deal would increase competition in the Australian telco market, allowing both companies to compete more aggressively and offer a serious challenge to Telstra and Optus’ dominance.

Vodafone Chief Executive Officer Iñaki Berroeta is keen to move forward with the deal, particularly as the provider is currently preparing for its mid-year 5G rollout.

“For the first time, Australia will have a third, fully-integrated telecommunications company,”said Mr Berroeta.

“This will give us the scale to compete head-to-head across the whole telecoms market which will drive more competition, investment and innovation, delivering more choice and value for Australian consumers and businesses.”

In comparison, other telco industry bigwigs have condemned today’s decision. Boost Mobile founder Peter Adderton shared his support for the ACCC, nominating Boost as an alternative for Australians looking for an affordable mobile provider.

“Ultimately, the ACCC was right in that having a fourth network is better for consumers,” said Mr. Adderton. “The problem has always been that TPG was never really going to be this fourth network, so it is up to Boost and the MVNOs to keep the bigger guys honest, and we must continue to push the envelope and be that value play for consumers.”

Similarly, Macquarie Telecom CEO David Tudehope said that the decision will only worsen the lack of competition, increase complaints to the Telecommunications Industry Ombudsman, and allow providers to continue to “underserve and overcharge” customers.

TPG and Vodafone customers: what’s next?

If you’re a Vodafone or TPG customer, it’s likely to be business as usual for the immediate future. Vodafone is on track to launch its own 5G network later this year, and a merger will see the next-gen technology reach TPG customers sooner than expected.

Both companies are likely to continue offering the same mobile and broadband products, at least until the merger is complete. However, there may be price changes once the deal is done and dusted.

With Telstra, Optus and Vodafone together holding around 87% of the Australian mobile market – and Telstra, Optus, and TPG controlling 85% of broadband – there’s millions of customers who may be impacted one way or another by the merger.

Whether this will actually lead to a more competitive and consumer-focused industry, or prove the ACCC’s fears of a worsening telco oligopoly correct, remains to be seen.

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