In a major blow to the ambitions of TPG Telecom, the competition regulator has blocked its planned $15 billion merger with Vodafone Hutchison Australia Pty Ltd.
This news was inadvertently published online on the ACCC’s mergers register briefly yesterday afternoon and the commission then followed up with a full statement and its reasons for opposing the deal around an hour later at 4.40pm, well after the market had closed.
The decision will be appealed and lengthy court proceedings are now likely.
TPG shares were up 2.4% to $7.19 before the Commission revealed the news of its opposition. They crashed more than 14% after the ACCC’s brief statement was published.
They closed down 13.5% at $6.07. Shares in Hutchison Telecommunications – Vodafone’s local partner – dropped 37.5% before closing down 28% at 11.5 cents.
Telstra’s share price dropped 2% to $3.29 because investors see the deal as easing downward pressure on mobile phone margins for telcos through an effective reduction in competition.
A ruling on the merger was delayed last December after the ACCC revealed it had concerns and asked for more submissions about the deal.
A major issue for the planned merger had been TPG’s plans to launch a fourth mobile network, but in January TPG canceled those plans blaming rising costs after the federal government banned Chinese telco, Huawei from involvement in the planned 5G network of TPG.
“Australia already has a very concentrated mobile services market, with the three network operators, Telstra, Optus, and Vodafone, having over 87 percent share. Similarly, the fixed broadband market is concentrated, with Telstra, TPG and Optus having approximately 85 percent share.” the commission said.
“Broadband services are of critical importance to Australian consumers and businesses, across both fixed and mobile channels,” ACCC Chair Rod Sims said.
“Given the longer-term industry trends, TPG has a commercial imperative to roll out its own mobile network giving it the flexibility to deliver both fixed and mobile services at competitive prices. It has previously stated this and invested accordingly.”
“Vodafone has likewise felt the need to enter the market for fixed broadband services. These moves by TPG and Vodafone are likely to improve competition and future market contestability,” Mr. Sims said.
The ACCC considers that the proposed merger between TPG and Vodafone will reduce competition and contestability in this sector.
The ACCC has concluded, in particular, that the proposed merger between TPG and Vodafone is likely to substantially lessen competition in the supply of mobile services because the proposed merger would preclude TPG entering as the fourth mobile network operator in Australia.
“TPG is the best prospect Australia has for a new mobile network operator to enter the market, and this is likely the last chance we have for stronger competition in the supply of mobile services,” Mr. Sims said.
“Wherever possible, market structures should be settled by the competitive process, not by a merger which results in a market structure that would be subject to little challenge in the future. This is particularly the case in concentrated sectors, such as mobile services in Australia.”
“TPG has a proven track record of disrupting the telecommunications sector and establishing itself as a successful competitor to the benefit of consumers. TPG is likely to be a vigorous and innovative supplier of mobile services in Australia, offering cheaper mobile plans with large data allowances, and competing strongly against incumbents Telstra, Optus, and Vodafone,” Mr. Sims said.
“TPG has the capability and commercial incentive to resolve the technical and commercial challenges it is facing, as it already has in other markets. TPG already has mobile spectrum, an extensive fibre transmission network which is essential for a mobile network, a large customer base and well-established telecommunications brands,” Mr. Sims said.
“TPG is also facing reducing margins in fixed home broadband due to the NBN rollout. Further, there is the growing take-up of mobile broadband services in place of fixed home broadband services which is expected to increase especially after the rollout of 5G technology.”
“After thorough examination, we have concluded that, if this proposed merger does not proceed, there is a real chance TPG will roll out a mobile network,” Mr Sims said.
“Industry incumbents have also referred to TPG as a formidable potential competitor in mobile and market commentary has supported the view that prices would fall with TPG’s entry as a new mobile network operator, delivering substantial benefits to consumers,” the statement ended.
