ACCC opposes Vodafone and TPG merger

Written on the 8 May 2019 by David Simmons

ACCC opposes Vodafone and TPG merger

The Australian Competition and Consumer Commission ('ACCC') has announced that it will block the merger between telecommunications giants TPG Telecom (ASX: TPM) and Vodafone (ASX: HTA), saying the merger would lessen competition. 

The consumer watchdog inadvertently published a statement online this afternoon stating that they will oppose the merger, however further commentary from the ACCC has now come to light.

Shares in both companies have tanked following the watchdog's statement. Shares in Vodafone are down 25 per cent to $0.12 per share at 3.53pm AEST while shares in TPG are down 14.03 per cent to $6.04 per share at 3.52pm AEST.

In December 2018 the ACCC hinted that it might oppose the merger, saying that the merged company would take away TPG's incentive for aggressive pricing strategies to offer cheap mobile plans and large data allowances.

According to ACCC chair Rod Sims the watchdog blocked the merger after considering Australia's already concentrated mobile services market, with the three network operators, Telstra, Optus and Vodafone, having over 87 per cent share. The fixed broadband market is similarly concentrated, with Telstra, TPG and Optus having approximately 85 per cent share.

"Broadband services are of critical importance to Australian consumers and businesses, across both fixed and mobile channels," says Sims.

"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."

Sims says 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," says Sims.

"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.

"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."

TPG executive chairman David Teoh says the company intends to challenge the ACCC's decision in the Federal Court of Australia.

"While we respect the ACCC's process, its decision has significant implications for Australian consumers, and in our view, must be challenged," says Teoh.

"TPG remains of the firm belief that the proposed merger will result in greatly enhanced competitive dynamics in the Australian telecommunications industry, as well as superior choice and outcomes for consumers."

"A combination of our companies would create a new, vigorous and vibrant competitive force. Left unchallenged, this decision will only serve to further entrench the enormous power of Telstra and Optus."

"With the advent of 5G netxt generation mobile technology, Australian consumers more than ever need a strong challenger."

The merger of the two giants would have resulted in a $15 billion telecommunications powerhouse.

VHA is owned 50-50 by British company Vodafone Plc and locally listed entity Hutchison Telecommunications Australia (ASX: HTA), the latter having seen its share price more than double since speculation about the merger began last week.

Neither Vodafone nor TPG have commented on the ACCC's brief statement as of 4.15pm AEST.

READ MORE: Gilbert + Tobin optimistic following bumper year for mergers and acquisitions

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Author: David Simmons

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