The deal, which was lodged in February, proposed that TPG will decommission 700 mobile sites and direct its services to Telstra’s network under certain commercial terms.

It also proposed that Telstra gain ownership of TPG’s regional spectrum, which extends beyond the regional geographic zone on Telstra’s network.

While both Telstra and TPG Telecom have outlined the benefits the deal would bring to consumers, critics such as Optus have warned the deal “will erode resilience for regional communities by reducing infrastructure variety in those regions.”

The decision
After conducting public consultation and investigation process and weighing the proposal, the regulatory body is not satisfied with the tests and therefore cannot grant authorisation.

ACCC commissioner Liza Carver said the proposed arrangements will likely lead to less competition in the longer term and leave the public worse off over time in terms of price and regional coverage.

“Mobile networks are of critical importance to many aspects of our lives, including our livelihood, our wellbeing and our ability to keep in touch with friends and family. Any reduction in competition will have very wide-ranging impacts on customers, including higher prices and reduced quality and coverage,” Carver explained.

“Mobile network operators compete on price and a user’s package inclusions, but importantly, they also compete on coverage, speed and other quality dimensions that are directly influenced by the nature and extent of their underlying network infrastructure,” Carver said.

“Entering into the arrangements proposed by Telstra and TPG will represent a significant change to the structure of the market that would have long-term consequences.”

The ACCC today released its determination and an executive summary of its reasons.

The full reasons will be released tomorrow following confidentiality checks with relevant parties.

Negative impact on coverage, network quality and innovation likely
Under their proposed arrangements, TPG would decommission or transfer its mobile sites in regional and urban fringe areas to Telstra. TPG would then acquire mobile network services from Telstra. It would then give Telstra access to most of its regional spectrum, the ACCC explained.

Using part of Telstra’s network would result an increase in TPG’s coverage from 96% to 98.8% of the population.

Carver admitted that the arrangement would lead to some short-term benefits from an improvement in TPG’s network coverage and cost savings for both telcos.

But she was quick to point out the enduring and substantial impact of the arrangement “would be to lessen infrastructure-based competition which would make consumers, including those in regional areas, worse off over time.”

“Competition between separate mobile networks drives companies to improve coverage for mobile users and to offer new technologies to more areas. For example, when Optus improves its regional network, Telstra responds by improving its network to maintain its market position,” Carver noted.

“Infrastructure competition is what drives investments by mobile companies in broader, deeper and faster mobile coverage. We have looked beyond the potential short-term effects to consider the long-term impact from the reduced incentive to innovate and improve networks. We have concluded the proposed arrangements would likely significantly weaken this competitive process.”

In its proposed arrangement, Telstra claimed that the increased spectrum from TPG Telecom would enable it to reduce congestion in reginal areas.

The ACCC investigated these claims.

“It is unclear the extent to which the additional spectrum would assist Telstra with alleviating congestion in regional areas, as the ACCC found that without the proposed arrangements Telstra has alternative ways to alleviate that congestion. It is unlikely that the proposed arrangements would materially improve Telstra’s ability to serve regional Australia. Instead, it would likely reduce the incentive for mobile companies to improve their service and coverage in regional areas,” Carver said.

The ACCC also weighed in Telstra’s dominant position in the mobile market. The body believes that the proposed agreements would result in Telstra “gaining access to most of TPG’s spectrum in regional and urban fringe areas.”

This would entail Telstra having a higher proportion of key spectrum.

“Telstra is already the strongest mobile network operator in Australia and has a very high share of regional customers. We consider that the proposed arrangements would lock up valuable spectrum with Telstra, raising barriers to entry and expansion and reducing the incentives and ability of rivals to compete,” Carver said.

“Telstra and TPG are proposing the arrangements at a time when each of Telstra, TPG and Optus are competing in the roll-out of 5G infrastructure including in regional areas. After careful consideration of all the information available to us, including internal confidential information from the carriers, we consider that there is a real risk that TPG and Optus will invest less in critical infrastructure than they would if the proposed arrangements do not proceed.”

Thorough review with many conflicting submissions received
The ACCC engaged in an extensive public consultation and investigatory process, considering a substantial volume of internal documents, more than 170 submissions, and 40 witness statements and expert reports.

There were strongly competing views expressed by interested parties.

“When assessing the proposed arrangements, we are principally concerned with the impact on the competitiveness of the market overall, not the impact on any individual firm. It is the overall competitive process which protects the interests of consumers,” Carver said.

“While Telstra and TPG have claimed the agreements will immediately lead to more choice for customers and better coverage for TPG customers, this misses the more significant impact on consumers which is that the reduction in competition in the longer-term will likely lead to higher prices, less innovation and quality of service, and less competitive pressure to expand and improve networks.”

Undertakings did not address concerns or improve public benefits
Telstra and TPG offered court-enforceable undertakings intended to address the ACCC’s preliminary concerns.

The undertakings argued that the ACCC could reassess the competitive effects of the proposed arrangements within eight years, and that TPG would not terminate leases or licences for 300 mobile sites in the relevant regional area.

“After careful consideration, we determined that these undertakings did not change whether the ACCC was satisfied of the relevant competition or public benefit tests against which the ACCC must assess a proposed merger authorisation,” Carver said.

“The proposed arrangements would have an immediate impact on infrastructure competition in Australia and that impact would endure. Even if the arrangements were terminated after eight years, it would be too late to unwind the negative competitive impact.”

Telstra and TPG’s view on the decision
TPG Telecom issued a statement on ASX, expressing its disappointment with the ACCC’s decision.

TPG will review ACCC’s decision, and will file that decision review to the Australian Competition Tribunal.

TPG Telecom CEO Iñaki Berroeta said the decision is a “missed opportunity to deliver greater competition and choice for the people of regional Australia.”

“We are disappointed the ACCC has chosen to ignore the overwhelming evidence submitted from
leading economists, competition experts and regional communities outlining the benefits of the
proposed arrangement to competition and consumer choice.

“If it had been authorised, the arrangement would have freed regional Australia from its current mobile duopoly, and the increased competition from TPG would have placed downward pressure on mobile pricing.”

Telstra was also disappointed with the decision as it claimed there is “overwhelming support the proposal received from regional customers and community groups who participated in the process.”

“This innovative agreement will deliver real competition-driven benefits for regional Australia, something recognised by the ACCC in its determination,” said Telstra CEO Vicki Brady.

“It also delivers better use of the Government’s spectrum assets by unlocking unused spectrum that TPG holds in regional Australia but isn’t using.”

In its statement, Telstra reiterated again the benefits of the agreement:

1. Telstra gaining access to TPG Telecom’s spectrum across 4G and 5G, allowing it to increase capacity.
2. Telstra obtaining access to and deploying infrastructure on up to 169 TPG Telecom existing mobile
sites, improving coverage for TPG and Telstra customers in the zone.
3. TPG Telecom gaining access to around 3,700 of Telstra’s mobile network assets, increasing TPG
Telecom’s current 4G coverage from around 96% to 98.8% of the population.
4. Telstra sharing its Radio Access Network (RAN) for 4G and subsequently 5G services in the defined
coverage zone with TPG and its customers, however both carriers will continue to operate their own
core network where key differentiating functionality resides.

‘Well-considered and decisive’ move for competition
Telco alliance body Commpete has welcomed the ACCC’s decision.

“This decision is a well-considered and decisive move for competition, and the wholesale and retail mobile market at a national level,” described Commpete chair Michelle Lim.

If the deal pushed through, Lim said, the deal “would have been another lever entrenching Telstra’s dominance in regional communications. It would have meant decisions over pricing, service availability and service standards are subject to the whims of a single private enterprise, without regulatory guardrails to guarantee value, flexibility and choice for an increasingly essential service.”

“Many of the public benefits were theoretical and unquantified, it provided no commitments on wholesale access to Telstra network on fair and non-discriminatory terms following any authorisation and would discourage the development of alternative infrastructure in regional areas by existing and emerging players,” Lim commented.

Lim said the likelihood of a court appeal resulting from the decision highlights its significance in embedding future market structure, as well as showing the challenges inherent in the merger review process.

“Just over 12 months ago, the former ACCC Chairman, Rod Sims, declared Australia’s merger review regime was no longer fit for purpose, because it was ‘skewed towards clearance’, and proposed major reforms. It’s time to revisit those proposed reforms, and telecoms access regulation in particular.”

Lim concluded that the path towards ensuring regional Australia has reliable, fair and valuable access to digital communications involves fostering industry-wide cooperation, and adopting network models that have proven successful in global markets.

“Cooperation between dominant and specialised regional mobile providers is imperative, and government and regulators should enshrine competition goals as a priority for all Australians. There should also be a focus on boosting mobile reach and competition in regional Australia by supporting the entry and expansion of neutral host networks,” she said.