ACCC blocks Vodafone merger

ACCC blocks Vodafone merger

The Australian Competition and Consumer Commission will oppose the $15 billion merger between mobile phone and internet data providers TPG and Vodafone Hutchison Australia. TPG and Hutchison Australia’s shares plummeted after the ACCC inadvertently published the news on its mergers register this afternoon before the market had closed.

 

The ACCC said it intended to release further details and the reasons behind the decision shortly.  However, the decision was not a surprise given the dim view the competition regulator had of the deal when announcing it would investigate the it late last year.  At the time, the ACCC argued customers could end up “paying higher prices” for “less innovative” mobile and fixed broadband plans if the companies were allowed to merge.

Standalone TPG last chance for competition: ACCC

In a delayed statement that came out after the market closed, the ACCC said a TPG-Vodafone merger would further concentrate an already very concentrated Australian telecommunications market.  It noted the big mobile network operators — Telstra, Optus and Vodafone — controlled more than 87 per cent of the market between them, while in fixed broadband Telstra, TPG and Optus share 85 per cent of the market.

 

“Broadband services are of critical importance to Australian consumers and businesses, across both fixed and mobile channels,” ACCC chair Rod Sims said in the statement.  “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.”  The ACCC concluded that the merger failed to pass the legal test of not “substantially lessening competition” in a particular market.

 

“The proposed merger between TPG and Vodafone is likely to substantially lessen competition in the supply of mobile services because the proposed merger would preclude TPG entering as the fourth mobile network operator in Australia.”  It may be of little consolation to TPG and its owners, but Mr Sims said the company was about the only hope to compete with the sector’s giants, Telstra and Optus.  “TPG is the best prospect Australia has for a new mobile network operator to enter the market, and this is likely the last chance we have for stronger competition in the supply of mobile services,” Mr Sims said.

 

TPG and Vodafone’s different markets

TPG has been one of the success stories of the Australian telecommunications industry, having grown from a small computer retailer founded in 1986 by its chief executive David Teoh.  It is a supplier of mobile and data services as well as its own end-to-end infrastructure, largely in capital cities, and the owner and operator of submarine cable running under the Pacific Ocean from Australia to Guam.

 

Along the way, TPG’s aggressive strategy of growth by acquisition has seen it snap up the likes of iiNet, AAPT, SP Telemedia and Pipe Networks. It broadened its scope offshore to become Singapore’s fourth mobile operator in 2016.  It is largely a broadband supplier using fibre, a point of difference from Vodafone Hutchison Australia (VHA) which is primarily a mobile business operating its own network as well as selling retail plans.

 

VHA has a complicated structure, jointly owned by the Vodafone Group in the UK and Hong Kong-based firm CK Hutchison, as well as a 2 per cent stake traded occasionally on the ASX.  That small listing on the ASX saw its share price pummelled by 28.5 per cent in just over half an hour of trade between the ACCC’s inadvertent announcement and the close of trade, where it finished at 11.5 cents.

 

 

TPG was also heavily sold off, closing down 13.5 per cent to $6.07.