ACCC will not appeal TPG-Vodafone merger decision

The Australian Competition and Consumer Commission (ACCC) has concluded it will not appeal the Federal Court's decision that approved the merger of two of Australia's largest telcos.

In February the Federal Court ruled in favour of a $15 billion merger of TPG Telecom (ASX: TPM) and Vodafone, determining the merger would not reduce competition.

The ACCC says it does not have grounds for appeal, which would require the watchdog to establish an error of law by the judge.

"The ACCC remains disappointed by this outcome, which has closed the door on what we consider was a once in a generation chance for increased competition in the highly concentrated mobile telecommunications market," says ACCC chair Rod Sims.

"The future state of competition without a merger is uncertain. But we know that competition is lost when incumbents acquire innovative companies."

"Despite this outcome, we will continue to oppose mergers that we believe will substantially lessen competition, because it's our job to protect competition to the benefit of Australian consumers."

The deal will be a "merger of equals" whereby TPG shareholders will own 49.9 per cent of the new entity and Vodafone Hutchison Australia (VHA) shareholders will own the remaining 50.1 per cent. VHA is owned 50-50 by British company Vodafone Plc and locally listed entity Hutchison Telecommunications Australia (ASX: HTA).

When the merger was announced in August 2018 TPG still had plans to roll out a 5G network, but in January 2019 the telco abandoned the idea due to the government's ban on Chinese telco Huawei in the country's networks.

The Federal Court saw TPG rolling out its own network as a lost cause and was in favour of establishing a viable contender through a merger to take on Telstra and Optus, even if it led to greater market concentration.

"Back in 2017, there was a moment in the affairs of TPG and Mr Teoh (the guiding force behind TPG) for a business opportunity to be taken to roll-out a retail mobile service," said Justice Middleton.

"That moment has passed. To now leave TPG and Vodafone in their current state will not promote competition in the retail mobile market.

"A merger would not now, and would not likely in the relevant future, substantially lessen competition in the supply of retail mobile services in Australia."

While TPG and Vodafone have cleared one hurdle to complete the merger, the two must still receive approval from the Committee on Foreign Investment in the United States and the Australian Foreign Investment Review Board.

Once approval from the two regulatory bodies is received the telcos expect the merger to be completed in mid-2020.

Shareholders have responded positively to the ACCC's decision to not appeal the Federal Court's decision, with shares in TPG up 8.3 per cent at 10.33am AEDT, and shares in HTA up 11.33 per cent.

TPG profit falls

TPG Telecom witnessed a 30 per cent fall in its net profit during 1H20 due to costs and amortisation.

Underlying net profit was $157.9 million during the period, down from $225.2 million in 1H19, as the group wrote off $53.7 million towards the costs of its Australian spectrum.

TPG was also slogged with a $19.6 million increase in net financing costs due primarily to the cessation of interest capitalisation associated with its Australian mobile network.

The company's reported net profit was up by 206 per cent on last year due to 1H19 having been impacted by a $227.4 million impairment expense arising from the cessation of TPG's proposed mobile network build.

The half included $6 million of one-off transaction fees relating to the merger with Vodafone Australia and a non-recurring benefit of $3.3 million within the TPG corporate division results.

As such, underlying EBITDA was down 6 per cent to $399.1 million during 1H20.

Preparations for TPG's commercial launch of mobile services in Singapore have progressed well during the period.

Over 400,000 users have so far been onboarded to the company's free trial service, and paid services are expected to be launched in the coming weeks.

TPG expects the Singapore service will soon be upgraded to a 5G network as the company applied for a national 5G licence in February.

In light of TPG's first half performance the company's directors have upgraded EBITDA guidance for FY20 to now be in the range of $775 million to $785 million. Previously guidance was in the range of $735 million to $750 million.

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