Wednesday, 08 May 2019 16:17

ACCC says it opposes TPG-Vodafone merger Featured

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ACCC says it opposes TPG-Vodafone merger Image by OpenClipart-Vectors from Pixabay

A day before it was scheduled to announce its decision on the proposed merger between TPG Telecom and Vodafone Hutchison Australia, the Australian Competition and Consumer Commission has been forced to announce it is opposed o the merger.

In a short initial statement, the ACCC said on Wednesday: "This information was inadvertently published online on our mergers register briefly this [Wednesday] afternoon." TPG shares fell by about 14% to $6.07 by 4.42pm AEDT.

Later, expanding on the reasons for opposing the deal, the competition watchdog said it considered that the proposed merger would reduce competition and contestability in the fixed broadband sector.

The watchdog said, in particular, a deal was 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 announced in January that it was cancelling plans for a mobile network due to the Australian Government ban on the use of equipment from Chinese vendor Huawei Technologies.

ACCC chair Rod Sims said: “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.

“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."

The watchdog said Australia already had a very concentrated mobile services market, with Telstra, Optus and Vodafone, having over 87% share. Similarly, the fixed broadband market was concentrated, with Telstra, TPG and Optus having approximately 85% share.

Sims said TPG had the capability and commercial incentive to resolve the technical and commercial challenges it was facing, as it already had 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,” he 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.”

Well-known telecommunications analyst Paul Budde told iTWire that he was "obviously surprised". On Monday he had said he expected both companies to make sufficient concessions to ensure that the competition watchdog would give the green light for the deal.

"This will be a significant setback for both companies as they needed to gather strength in an increasingly more competitive market," Budde, Australia's best-known commentator on telecommunications issues said.

"Margins are shrinking and share prices keep going south. In order to survive and thrive costs need to come down and an important strategy for this is a merger. This increases their combined market power and provides a good platform for cost savings."

He said it looked like the companies had been unwilling to provide the concessions or develop a business model that would see TPG, in one way or another, remain a price competitor in the market.

"It will be interesting to see what the ACCC's argument [for opposing the deal] is and the responses from the companies," he added. "Now, without a good mobile plan going forward, TPG seems to be the major loser of this."

A spokesman for the Australian Communications Consumer Action Network, which bills itself as Australia's peak body for consumer representation in communications, told iTWire in response to a query that it would not be commenting on the ACCC decision.

TPG and Vodafone announced the proposed merger on 30 August last year, with the scrip deal creating a company with an enterprise value of about $15 billion.

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Sam Varghese

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Sam Varghese has been writing for iTWire since 2006, a year after the site came into existence. For nearly a decade thereafter, he wrote mostly about free and open source software, based on his own use of this genre of software. Since May 2016, he has been writing across many areas of technology. He has been a journalist for nearly 40 years in India (Indian Express and Deccan Herald), the UAE (Khaleej Times) and Australia (Daily Commercial News (now defunct) and The Age). His personal blog is titled Irregular Expression.

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