The ban on the $15 billion merger between TPG Telecom (ASX: TPM) and Vodafone Hutchison Australia (ASX: HTA) has got a lot of people scratching their heads – and not just because it was “accidentally’’ released on the Australian Competition and Consumer Commission (ACCC) website a day early.
In simple terms, the ACCC has banned the merger of two companies that aren’t even competitors in any real sense.
Instead, the action seems to have been taken because they “might’’ have become competitors – something David Teoh’s TPG was planning on a limited scale with a modest small cell mobile phone network in the major cities.
TPG network build hit by Huawei ban
Those plans have now been abandoned, brought down by the Australian Government ban on using Huawei 5G equipment that TPG has signed up to buy, but still the lack of this limited potential network was enough to prevent the merger.
There are some who suggest TPG used that ban as an excuse to stop its mobile network roll-out but the fact remains, it doesn’t own an effective mobile network at the moment and may never do so without this merger.
According to the ACCC decision, “TPG has a proven track record of disrupting the telecommunications sector” and “is likely to be a vigorous and innovative supplier of mobile services in Australia, offering cheaper mobile plans with large data allowances, and competing strongly against incumbents.”
Given the absolutely dominant position of Telstra (ASX: TLS) and Optus in the mobile market – a position becoming more dominant by the day with the imminent roll-out of their 5G networks – that idea seems more based on an illusion of potential competition rather than a reality.
Thwarted merger partners planning court action
Both TPG and Vodafone have acknowledged the decision but are planning to challenge it in the Federal Court.
TPG executive chairman David Teoh said: “While we respect the ACCC’s process, its decision has significant implications for Australian consumers, and in our view, must be challenged.”
He continues to believe the merger would result in greatly enhanced competitive dynamics in the industry and superior choice and outcomes for consumers, given that TPG is stronger in fixed broadband and Vodafone in mobiles, allowing the combination to bundle consumer products.
Decision boosts power of Telstra and Optus
Mr Teoh said not allowing the merger would 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.”
That is why TPG believes “there is a compelling case to seek orders from the Federal Court of Australia that the proposed merger will not, and is not likely to, substantially lessen competition.”
Together with Vodafone Australia, the company intends to pursue proceedings in the Federal Court soon.
Vodafone Australia is joint-owned by UK company Vodafone Group and Hong Kong-based firm Hutchison, and has the third-biggest mobile network in the country and a small business providing NBN plans.
TPG is primarily a fibre infrastructure and fixed broadband retail business with its main brands TPG, iiNet and Internode. It has extensive fibre networks, wireless spectrum and some high-density cells in metropolitan areas that would have significantly boosted Vodafone’s efforts to roll-out 5G mobile technology.
When the merger ban was accidentally announced on the ACCC website, TPG’s share price slumped by 14% and Hutchison Telecommunication’s dropped by 28%.
The merger has been supported by many industry bodies, including consumer group Australian Communications Consumer Action Network.