TPG and Vodafone to file legal action against ACCC
Written on the 9 May 2019 by David Simmons
Following the Australian Competition and Consumer Commission's ('ACCC') decision to oppose the $15 billion merger between Vodafone (ASX: HTA) and TPG (ASX: TPM) both telcos have committed to taking on the watchdog in court.
In an ASX statement late yesterday afternoon TPG says that it intends on challenging the watchdog's decision in the Federal Court.
"While we respect the ACCC's process, its decision has significant implications for Australian consumers, and in our view, must be challenged," says David Teoh, TPG executive chairman.
"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 next generation mobile technology, Australian consumers more than ever need a strong challenger."
Vodafone chief executive officer Iñaki Berroeta says the company remains committed to the merger with TPG.
"VHA respects the ACCC process, but we believe the merger with TPG will bring very real benefits to consumers. We have therefore decided that VHA should, together with TPG, pursue approval of the merger through the Federal Court," says Berroeta.
"VHA is an established mobile business with less than one per cent of the fixed broadband market, while TPG is the second largest fixed broadband player with no mobile network."
"Australia's mobile market has delivered some of the best outcomes for consumers of any country in the OECD. The merger provides a unique opportunity for VHA and TPG to combine their complementary assets. The merger would create an entity that can compete more aggressively in this highly competitive market than either VHA or TPG could on their own. It is disappointing that the ACCC does not see it this way."
"While we continue to pursue the merger through the court, it remains business as usual for VHA. We will continue to challenge the market by delivering the best value products and services we can to our customers."
The merger agreement with TPG has also been extended to 31 August 2020 to allow sufficient time for the Federal Court to deliver its decision and for the merger process to be completed.
Shares in both companies tanked yesterday afternoon following the ACCC's decision but have since recovered following TPG's announcement.
Shares in TPG are up 2.88 per cent to $6.24 per share and Vodafone is up 13.04 per cent to $0.13 per share at 11.02 AEST.
The consumer watchdog blocked the merger saying that the combined company would lessen competition in the market.
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."
Business News Australia
Author: David Simmons