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The competition regulator says the merger would take away TPG Telecom's (ASX:TPG) incentive for aggressive pricing strategies to offer cheap mobile plans and large data allowances.
A merger to form a $15 billion telecommunications powerhouse between TPG Telecom and Vodafone Hutchison Australia has been called into question by the Australian Competition and Consumer Commission (ACCC), citing "preliminary concerns" about the potential impact on mobile and broadband markets.
"Our preliminary view is that TPG is currently on track to become the fourth mobile network operator in Australia, and as such it's likely to be an aggressive competitor," says ACCC chair Rod Sims.
"We therefore have preliminary concerns that removing TPG as a new independent competitor with its own network, in what is a concentrated market for mobile services, would be likely to result in a substantial lessening of competition.
"If TPG remains separate from Vodafone, it appears likely to need to continue to adopt an aggressive pricing strategy, offering cheap mobile plans with large data allowances."
The regulator's preliminary view is that the merged entity would not have the incentive to act in the same way, leading to reduced competition in the market.
"A mobile market with three major players rather than four is likely to lead to higher prices and less innovative plans for mobile customers," says Sims.
After the announcement TPG's are currently down 14 per cent at $6.63, while shares have dropped for other telcos including Vocus Group (ASX: VOC) and Telstra (ASX: TLS), which are down 3.2 per cent and 2.6 per cent respectively.
TPG provides retail fixed broadband and voice services, while Vodafone has also entered the fixed broadband arena on the National Broadband Network (NBN). The later owns and operates its own mobile network, while the former is building one.
The ACCC plans to "closely examine" the likely impact of removing Vodafone as a competitor in the fixed broadband market.
"Although Vodafone is currently a relatively minor player in fixed broadband, we consider it may become an increasingly effective competitor because of its high level of brand recognition and existing retail mobile customer base," says Sims.
The longer-term impact of the proposed merger will also be considered in light of the likely increased take-up of mobile broadband services in place of fixed home broadband services in the future, particualrly after the roll-out of 5G technology.
"The ACCC is continuing to consider whether operators will need to offer both mobile and fixed broadband services in the longer-term to remain competitive, meaning that TPG and Vodafone will necessarily be closer competitors in the future," says Sims.
TPG issued a statement today acknowledging the importance of the ACCC process, stating it looks forward to working with the regulator with a view to addressing the matters raised and progress with the clearance process.
"TPG remains confident that the necessary regulatory approvals and other conditions precedent can be completed to enable completion of the merger in the first half of 2019," the telecommunications group said.
The ACCC invites submissions from interested parties on its Statement of Issues by 18 January 2019. The ACCC's final decision is scheduled for 28 March 2019.
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