TPG Telecom shares took a hammering yesterday after the competition watchdog, the ACCC revealed problems it has with the proposed merger with rival telco, Vodafone Hutchison Australia.
The Commission has delayed a decision on the planned merger for three months because of its concerns and has asked for more submissions about a deal that is widely expected to reduce downward pressure on mobile plan prices.
The commission is concerned it will lead to a “substantial lessening of competition” in the mobile phone sector.
TPG shares fell 16.7% to $6.45. Shares in the Vodafone Australian majority owner, Hutchison Telecommunications fell 21.4% to 11 cents and Telstra shares were also weaker falling 3.3% to $2.93 as investors realised it would face more competitive pressures in mobiles if the ACCC manages to block the TPG merger.
The two telcos announced the planned link up in August and claim the deal will create a more significant competitor against market leaders Telstra and Singtel Optus.
But the ACCC is not convinced and sees dangers for consumers from a lack of competition in mobiles.
Commission chair, Rod Sims said in a statement on Thursday that TPG was “currently on track to become the fourth mobile network operator in Australia, and as such it’s likely to be an aggressive competitor”.
“We therefore have preliminary concerns that removing TPG as a new independent competitor with its own network, in what is a concentrated market for mobile services, would be likely to result in a substantial lessening of competition.
“If TPG remains separate from Vodafone, it appears likely to need to continue to adopt an aggressive pricing strategy, offering cheap mobile plans with large data allowances.”
He said the regulator’s preliminary view was that the merged company would not have the same incentives to operate in this way and competition would be reduced as a result.
“A mobile market with three major players rather than four is likely to lead to higher prices and less innovative plans for mobile customers,” he said.
Mr Sims requested additional submissions about a new statement of issues by January 18, with a decision to be made by March 28.
TPG and Vodafone have been working closely together since the deal was announced. The two became a joint venture to buy licences for valuable radio wave spectrum, which is used to transmit mobile signals across the country.
The auction announced on Monday of this week revealed the pair had committed to spend $263.3 million to get access to 3.6 GHz spectrum that will enable the telcos to launch ultra-fast 5G mobile networks from next year.
The joint venture applies even if the corporate transaction does not go ahead.
A sticking point for the Commission is that the merger, if it happens would spell an end to TPG’s construction of a 4th mobile network to compete with Telstra, Optus and Vodafone.
That has been welcomed by the ACCC and Mr Sims as a good outcome for customers.
Mobile prices have fallen despite rising data inclusions in plans as telcos fight to retain and attract new customers, with the rollout of the national broadband network (NBN) also pressuring the bottom lines of existing players, especially Telstra.
If this merger is blocked then Telstra will be seen as the biggest loser because it will have to spend heavily to protect its market leading position.
The regulator said yesterday it will further examine the impacts of removing Vodafone from the fixed broadband market.
“Although Vodafone is currently a relatively minor player in fixed broadband, we consider it may become an increasingly effective competitor because of its high level of brand recognition and existing retail mobile customer base,” Mr Sims said.
“The ACCC is continuing to consider whether operators will need to offer both mobile and fixed broadband services in the longer-term to remain competitive, meaning that TPG and Vodafone will necessarily be closer competitors in the future,” he said.
