ACCC backs down on proposed Vodafone, TPG merger after Federal Court delivers final decision

Hutchison Telecommunications Australia ASX HTA Vodafone TPG merger ACCC
The ACCC won't appeal the Australian Federal Court's decision to allow the merger between Vodafone Hutchison Australia and TPG Telecom.

The Australian Competition and Consumer Commission has confirmed it will not appeal the Federal Court’s recent decision that a proposed merger between TPG Telecom (ASX: TPM) and Vodafone parent company Hutchison Telecommunications Australia (ASX: HTA) would not substantially lessen competition.

The commission first announced its decision to oppose the $15 billion merger in May last year, claiming it would reduce competition and contestability in the sector.

“Australia already has a very concentrated mobile services market, with Telstra, Optus and Vodafone having over 87% share,” it said at the time.

“The fixed broadband market is similarly concentrated, with Telstra, TPG and Optus having approximately 85% share.”

It said any merger would be likely to substantially lessen competition in the supply of mobile services as it would preclude TPG entering as the fourth mobile network operator in Australia.

In the absence of the merger, TPG was likely to continue to roll out its own mobile network and become an innovative and disruptive competitor in Australia’s concentrated mobile telecommunications market.

The company has already spent $1.26 billion on the spectrum needed to build a mobile network, has an extensive transmission network, as well as a large customer base, and established brands in TPG, iiNet and Internode.

In February, Australia’s Federal Court approved the proposed merger, saying it would not lessen nationwide competition.

No appeal

The ACCC today announced it would not appeal the decision based on it not being able to establish an error of law by the judge.

“Our concern was that with this merger, mobile data prices would be higher than they would be otherwise,” ACCC chairman Rod Sims explained.

“[We] remain 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.”

“The future state of competition without a merger is uncertain, but we know that competition is lost when incumbents acquire innovative competitors.”

The ACCC is successful in more than 80% of the consumer and competition law cases it brings.

It opposes mergers in a range of markets every year, with very few decisions challenged in court.

A great outcome

Vodafone chief executive officer Iñaki Berroeta said the Federal Court’s decision was a “great outcome” for the Australian economy as it would allow for greater investment in next generation networks including 5G.

“It’s been 18 months since we commenced the approval process for this merger and we’re very keen to move forward and deliver these benefits as soon as possible,” he said.

“We have ambitious 5G rollout plans and the more quickly the merger can proceed, the faster we can deliver better competitive outcomes for Australian consumers and businesses.”

Merger background

Hutchison first announced the proposed merger of equals between Vodafone and TPG in August 2018, with a view to creating an integrated fixed and mobile offering and a “more effective challenger” in the current market.

Hutchison has a 50% interest in Vodafone, which is Australia’s third largest mobile operator with a customer base of around 6 million subscribers.

TPG has Australia’s second largest fixed-line residential customer base of over 1.9 million subscribers and a significant corporate, government and wholesale business.

Both companies own and operate complementary telecommunications network infrastructure, including more than 27,000 kilometres of metropolitan and inter-capital fibre networks, a leading mobile network with over 5,000 sites, international transit capacity and a strategic portfolio of spectrum assets.

Hutchison said the combined assets would “maximise the opportunities presented by convergence” and position the new entity to invest in 5G technologies to deliver faster services and offer more competitive value propositions to more customers.

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