TPG and Vodafone to fight for merger in Federal Court

Telecommunications companies TPG Telecom (ASX: TPG) and Vodafone Hutchison Australia are going to court over the competition watchdog's rejection of their $15 billion merger.

Earlier this month the Australian Consumer and Competition Commission (ACCC) announced it would block the deal on the grounds it would lessen competition.

The ACCC previously raised concerns about the tie-up's potential to disincentivise pricing strategies for cheap mobile plans and large data allowances.

TPG executive chairman David Teoh contested the decision claiming it would "only serve to further entrench the enormous power of Telstra and Optus".

The regulatory obstruction came within a few months of TPG pulling out of plans for building Australia's fourth mobile network, prompted by a government ban on Chinese telco Huawei.

Both TPG and Vodafone joint owner Hutchison Telecommunications (ASX: HTA) indicated they would take legal action, and on Friday afternoon they delivered on the promise.

Proceedings have been lodged with the Federal Court of Australia seeking orders that the proposed merger would not have the effect, or likely effect, of substantially lessening competition.

"For legal process reasons, the Statement of Claim identifies VHA as the applicant and the Australian Competition and Consumer Commission and TPG as the respondents," TPG said in a statement.

"TPG and VHA are working together to progress the proceedings and TPG supports the orders being sought in the VHA application."

"We believe the merger will create an entity that can compete more aggressively in the mobile market and will increase our ability to invest in networks, new technologies, and competitive plans and products for Australian consumers," added Vodafone.

TPG shares fell 13.5 per cent the day after the ACCC's decision to $6.07 per share, but have rebounded slightly to $6.25 since then. 

HTA shares fell by a quarter after that announcement to $0.12, but in early trading this morning rose 8.33 per cent to $0.13. 

The telco's announcements coincided with the 2019 Competition Law Conference in Sydney, where ACCC chair Rod Sims reiterated his claim the merger would have a negative impact on Australian consumers.

He noted the proposed deal was a "topic of much discussion" at the International Competition Network annual meeting in Colombia recently, where it was revealed that international markets with four mobile players resulted in better outcomes for consumers.

"Australia already has a very concentrated mobile services market, with the three network operators, Telstra, Optus and Vodafone," Sims said.

"TPG has a proven track record of disrupting the telecommunications sector and establishing itself as a successful competitor in fixed broadband services. This has had large benefits for customers.

"Removing TPG as an independent player, with its customer base, backhaul infrastructure and spectrum, would, in our view, have a very negative impact on Australian consumers in this increasingly important market."

Sims made mention of recent comments from the Canadian Competition Bureau, which observed mobile wireless pricing was much lower in regions where there were four players, and conversely prices were high and stable when there were three players.

"In the commentary on this matter, I think there is reflected a belief that the scale or financial strength of a competitor determines their competitiveness," he said.

"We don't agree with this. A stable three-player market facing no threats will likely lead to stable and so-called rational pricing."

He emphasised rational pricing should never be confused with consumer interest.

"The prospect of more rational pricing, meaning higher and stable pricing, was warmly anticipated by many analysts when this merger was first announced. Most commentators at that time, therefore, saw the merger as a long-term positive for Telstra and Optus," Sims said.

"Consumers need the benefits of vigorous competition in order to obtain competitive pricing and the innovation that is in their interests.

"In this context we need to also recognise that Australians pay more for mobile communication services than many other countries we like to compare ourselves with."

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