ACCC Blocks Vodafone-TPG Merger, So They’re Taking Legal Action [Updated]

ACCC Blocks Vodafone-TPG Merger, So They’re Taking Legal Action [Updated]
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Earlier this afternoon the Australian Competition and Consumer Commission (ACCC) announced that it will be opposing the merge between Vodafone Hutchison Australia (VHA) and TPG.

The two companies were quick to respond, stating their intention to take the matter up in Federal Court.

TPG Cans Mobile Network, Blames Huawei Ban

In 2017 TPG announced this it would be launching a $600 million mobile network. The plan was to have Huawei as its primary equipment provider - a decision that was complicated last year when the Federal Government banned the Chinese vendor from selling 5G equipment in Australia. Now TPG has decided to cease its mobile rollout, naming the ban as the reason.

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When the news originally broke the ACCC did not provide further details on the decision. This is due to the opposition publishing on its mergers register before the news had been announced.

“The ACCC has decided to oppose the proposed merger between TPG Telecom Limited (ASX: TPM) and Vodafone Hutchison Australia Pty Ltd (ASX:HTA).

This information was inadvertently published online on our mergers register briefly this afternoon. We intend to publish a further media release shortly.”

The ACCC has since provided a full media release and said that Australia already has a concentrated mobile services and broadband market.

It states that Telstra, Optus and Vodafone have an 87 per cent of the mobile market, with Telstra, TPG and Optus having an approximate 85 per cent share of the broadband market.

As such, as the ACCC believes that a merger between TPG and Vodafone would reduce competition in these sectors.

Instead, the commission wishes to see the two companies enter them separately, echoing sentiments that it made in December 2018.

“Broadband services are of critical importance to Australian consumers and businesses, across both fixed and mobile channels,” ACCC Chair Rod Sims said.

“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,” Mr Sims said.

TPG has responded to this decision with disappointment.

In 2017 TPG announced its intent to launch a $600 million mobile network, with Huawei named as the primary equipment provider.

In August 2018 both TPG and Vodafone announced its intention to merge, which would bring Vodafone’s 6.4 million mobile subscribers and TPG’s 1.9 million fixed broadband subscribers under the same company.

This proposition subsequently came under criticism from the ACCC.

“The ACCC is concerned that the proposed merger may substantially lessen competition in the market for wholesale mobile services nationally,” the commission stated in December 2018.

“The ACCC’s preliminary view is that the removal of TPG as a fourth mobile network operator (MNO) may result in higher prices for wholesale services and more restrictive conditions for wholesale customers,” it added.

Back in January TPG announced that it would be ceasing its mobile network rollout, citing the government’s Huawei 5G network ban as the reason.

The ACCC addresses the cancellation in its most recent press release, stating that it believes that TPG will still roll out its own mobile network if the merge is blocked.

“TPG has the capability and commercial incentive to resolve the technical and commercial challenges it is facing, as it already has in other markets. TPG already has mobile spectrum, an extensive fibre transmission network which is essential for a mobile network, a large customer base and well-established telecommunications brands,” 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,” Mr Sims said.

It will be interesting to see if the ACCC is right about this. The project has been cancelled since January and TPG has already lost $100 million in capital expenditure. There has been no public indication that it has been looking for other equipment providers in the meantime.

You can read the full media release from the ACCC here.

We have reached out to Vodafone and TPG for comment.

Update 5:15pm:

Vodafone Hutchison Australia (VHA) has announced that both it and TPG plan to take legal action in Federal Court as a response to the ACCC’s decision of opposition.

“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,” said VHA Chief Executive Officer Iñaki 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,” said Mr Berroeta.

“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.”

TPG’s executive chairman David Teoh offered a similar reaction, adding that the merger is necessary to challenge the likes of Telstra and Optus.

“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 vigerous 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.”

The merger agreement has subsequently been extended to 31 August 2020 in order to allow the Federal Court to come to a decision.

This story has been updated to include the ACCC’s media release and comments from both TPG and Vodafone