ACCC Opposes TPG-Vodafone Proposed Merger

TPG Telecom Limited (ASX: TPM), a telecommunication company headquartered in North Ryde, Australia, offers internet, mobile and fixed line services to its customers. Its customers include residential users, SMEs, government bodies, corporates and wholesale clients.

The Australian Competition and Consumer Commission (ACCC) has decided to reject the TPG-Vodafone planned merger. Vodafone Hutchison Australia Pty Ltd (ASX: HTA) is the third largest telecommunications provider in Australia.

The proposed merger between the two companies was announced on 30th Aug 2018 in which it was decided that TPG shareholders would own 49.9 per cent stake in the new merged group while VHA shareholders to hold the remaining 50.1 per cent. The ACCC has earlier also raised concerns over the proposed merger on 13th Dec 2018 regarding the impact of the merger on Australia’s mobile and broadband markets.

Currently, in Australia, the three network operators – Telstra, Optus and Vodafone have over 87 per cent share in the mobile services market. Similarly, Telstra, TPG and Optus have over 85 per cent share in the fixed broadband market.

According to ACCC Chair Rod Sims, TPG had previously stated and in fact also invested to launch its own mobile network so that it can offer both the fixed and mobile services at reasonable prices. Likewise, Vodafone intended to enter the fixed broadband services market. In case of such moves, the competition is expected to be improved in the market.

The ACCC believes that if the proposed merger materializes, it would reduce the competition in the telecom sector.

The ACCC has inferred that the merger would prevent TPG Telecom to join as the 4th mobile network operator in Australia.

However, TPG Executive Chairman, David Teoh considers that this merger has the potential to enhance competitive environment in the Australian telecom industry. He is of the view that Australian consumers need a strong challenger with the advent of 5G mobile technology.

Mr Rod Sims has viewed the entry of TPG (as new mobile network operator) as perhaps the last chance to strengthen competition in the mobile services market. He opines that the competitive process should settle the market structures in a concentrated mobile services market like Australia. TPG has the potential to be a successful competitor and become a powerful provider of mobile services in Australia. The company may strongly compete against Telstra, Optus and Vodafone by providing reasonable mobile plans with large data allowances.

Mr Sims thinks that if the proposed merger does not materialize, TPG is expected launch its mobile network.

TPG and Vodafone are likely to file a legal action against the ACCC decision. The companies intend to approach the Federal Court of Australia to seek orders that the proposed merger would not substantially lessen competition.

Vodafone Chief Executive Officer Iñaki Berroeta stated that the alliance with TPG would bring real benefits to consumers and the two companies have decided to pursue approval of the merger through the Federal Court.

TPG has also released its half-year results for FY 2019 in March 2019. The company reported EBITDA of $420 million during the half-year period.

The company’s stock closed the day’s trading at AUD 6.080 (on 9th May 2019).


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