Will TPG's iiNet buyout kill broadband competition?

The Australian Competition and Consumer Commission is investigating whether TPG's move to acquire iiNet will decrease competition in the retail broadband market.

"The ACCC’s preliminary view is that the acquisition of iiNet may lead to a substantial lessening of competition, potentially resulting in higher prices and/or degradation of the non-price offers available in the market, including customer service," said a statement of issues released today by the competition watchdog.

"The ACCC is considering these issues further, including the extent of constraints posed by other competitors."

Although the acquisition iiNet is unlikely to decrease competition in the wholesale market, the merger of the two ISPs would deliver 27 per cent of the retail fixed broadband market to TPG, the ACCC noted.

Telstra would remain the largest supplier with 41 per cent of the fixed broadband market, the ACCC said. Currently the ACCC pegs iiNet's share of the DSL and cable broadband market at 15 per cent and TPG's at 12 per cent. Optus has a 14 per cent market share, M2 8 per cent and other telcos 10 per cent.

"The proposed acquisition would combine two of the five largest suppliers of fixed broadband in Australia," the head of the ACCC, Rod Sims, said.

"The ACCC is exploring the extent to which the acquisition of iiNet will reduce competition by reducing the likely competitive tensions in respect of pricing, innovation and service quality," the ACCC chairperson said.

The ACCC initially sought comment in April on the potential for the acquisition to decrease broadband competition.

"The ACCC has received a number of submissions from consumers," Sims said.

"Their concerns primarily focus upon fears that iiNet's customer service levels will decline as a result of the proposed acquisition."

TPG has indicated that the iiNet brand will be kept alive as a premium brand post-acquisition.

"The ACCC is also considering whether the competitive constraint posed by the remaining competitors, namely Telstra, Optus, M2 and the much smaller market participants, would be sufficient to prevent a substantial lessening of competition in the supply of fixed broadband services," Sims said.

"As a general proposition, competition is stronger when the market contains more competitors."

"The ACCC has received mixed views regarding the competitive constraints that exist in the relevant market," the ACCC's statement of issues said.

"Some interested parties consider that TPG would continue to be constrained after the acquisition, given the presence of other large suppliers of retail fixed broadband services and the threat that TPG would lose customers to those competitors if it increased prices or reduced service levels."

The ACCC is accepting submissions on issues outlined in the document until 2 July. The organisation intends to announce a decision on the acquisition by 20 August.

TPG announced in March it would seek to acquire iiNet, a move that has been met with a mixed response.

The telco was forced to fend off a rival acquisition bid by M2, with a revised TPG offer getting the tick of approval from iiNet's board. iiNet shareholders are due to vote on the deal next month.

Copyright © 2015 IDG Communications, Inc.

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