Competition cop not yet sold on TPG-Vodafone merger

The Australian Competition and Consumer Commission (ACCC) is seeking further information before it green lights the merger of TPG and Vodafone Hutchison Australia (VHA).

The ACCC today released a statement of issues detailing concerns relating to the impact of the telco mega-merger.

A key issue identified by the competition watchdog is that the merger would “substantially lessen competition in the market for retail mobile services nationally”. The ACCC said that its “preliminary view is that the proposed merger will result in a more concentrated and less competitive market by removing TPG as a strong competitor.”

“The ACCC considers that without the merger, TPG would likely adopt an aggressive pricing strategy, offering cheap plans with large data allowances,” the statement of issues says.

The statement outlines other issues that the ACCC believes may also raise concerns, including substantially lessening competition for the wholesale supply of mobile services and retail fixed broadband services and, over the longer term, the impact on competition for retail home broadband services

The ACCC said it is considering “whether when 5G mobile technology becomes commercially available in the near future, TPG and VHA may, in the absence of the merger, compete in a market for retail broadband services using either mobile or fixed networks... In this case, the proposed merger may substantially lessen competition in that market.”

“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,” ACCC chair Rod Sims said in a statement.

“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.”

“Our preliminary view is the merged TPG-Vodafone would not have the incentive to operate in the same way, and competition in the market would be reduced as a result,” Sims said. “A mobile market with three major players rather than four is likely to lead to higher prices and less innovative plans for mobile customers.”

The ACCC head noted that although VHA had only relatively recently entered the Australian fixed line broadband market it had the potential to be an “increasingly effective competitor” because of its brand recognition and existing mobile customer base.

TPG issued a short statement to the ASX acknowledging the ACCC's statement. It noted that the statement of issues “is a preliminary view by the ACCC”.

“TPG acknowledges the importance of the ACCC process and looks forward to continuing to work with the ACCC with a view to addressing the matters it has raised today and to continuing progressing the clearance process,” TPG said.

The telco said it was confident that the regulatory approvals and other conditions precedent can be completed to enable the merger to be completed in the first half of next year.

Vodafone said that it will “consider the matters raised in the ACCC’s statement and provide comprehensive responses in due course”.

“Over recent months, VHA has engaged closely and transparently with the ACCC, providing a significant amount of information about the proposed merger, consumer benefits and challenges faced by providers in the telecommunications sector,” the telco said.

“This proposed merger is a significant transaction, and we respect the need for the ACCC to make a carefully considered decision, so today’s announcement wasn’t unexpected,” VHA CEO I?aki Berroeta said.Berroeta would be the chief executive of the merged telco.

“Customers will be the big winners of a proposed merger between VHA and TPG Telecom, and we’ll continue to engage with the ACCC as we have done over recent months,”Berroeta said.

“Increased investment requires increased scale, and the proposed merger will enable the merged entity to take competition in the market to the next level,” the CEO added.

“The merged company will have significantly increased ability to invest in networks, new technologies, and competitive plans and products for Australian customers.”

Vodafone said it was confident the merger will be completed in the first half of 2019, subject to approvals.

The ACCC is accepting submissions until 18 January in response to the issues it raised.

VHA and TPG announced in August that they had agreed to a “merger of equals”.

If the merger goes ahead the new entity, which will be named ‘TPG Telecom Limited’, will be owned 49.9 per cent by TPG shareholders and 50.1 per cent by VHA’s shareholders mdash; Vodafone and Hutchison Telecommunications Australia.

The post-merger telco will have around a fifth of the Australian mobile market and and 22 per cent of the fixed line broadband market, with around 6.4 million mobile subscribers and 1.9 million fixed line customers.

Ahead of the merger the two companies formed a joint venture to bid for spectrum in the government’s 3.6GHz auction. The joint venture paid $263 million for 131 lots in the auction, including a significant number of lots in regional areas. The spectrum will be used to deliver 5G services.

Copyright © 2018 IDG Communications, Inc.

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