Competition watchdog flags consumer concerns over proposed merger between TPG and Vodafone

A planned merger between telco giants Vodafone and TPG could leave mobile customers worse off, says the competition watchdog.

A planned merger between telco giants Vodafone and TPG will need to allay concerns held by the country’s top consumer watchdog to get the green light.

The Australian Competition and Consumer Commission (ACCC) has raised “preliminary competition concerns” about the two companies joining forces, citing fears that customers could lose out with a decrease in competition in the mobile market.

The proposed $15 billion deal is all about combining assets to take on the big guys of Telstra and Optus. Vodafone has a sizeable mobile network with a customer base of approximately 6 million subscribers as of June 2018. Meanwhile TPG — which also owns iiNet and Internode — has extensive fibre networks and high density cells in metropolitan areas that will significantly boost Vodafone’s efforts to rollout 5G mobile technology.

TPG has traditionally supplied fixed home broadband and voice services and has been snapping up spectrum in recent years to build out its own mobile network.

“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 Chairman Rod Sims said.

Prior to the proposed merger, TPG announced a mobile deal that promised customers the first six months for free, after which they would be charged just $9.99 a month for unlimited data. However the unique offer had some caveats, most notably that during the initial free period it would be a data-only service and only support calls made using voice over internet protocol (VoIP).

Whether TPG truly intended to come to market with the deal or if it was perhaps meant to colour the upcoming merger negotiations, we don’t know.

But the ACCC appears reticent to simply wave through the merger if it means such consumer-friendly deals completely disappear from the marketplace.

“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,” Mr Sims said.

“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. A mobile market with three major players rather than four is likely to lead to higher prices and less innovative plans for mobile customers.”

It’s not unusual for the ACCC to flag such concerns in a process like this. But it seems unlikely that regulatory approval would be denied.

Vodafone Hutchison Australia said the ACCC’s outlining of concerns with the proposed merger “wasn’t unexpected.”

When the proposed deal was announced in August, industry experts suggested that the dominant incumbents, Telstra and Optus, would be happy with the outcome.

“The big fear in the market was that TPG would start a real price war,” said telecom expert Paul Budde. “Telstra and Optus will be delighted with this as competition will now be less severe.”

Nonetheless, many expect the merger to eventually go ahead.

“Given that we’ve long operated in a three-player market for mobile networks, it seems unlikely it will be blocked,” finder.com.au’s tech expert Alex Kidman told news.com.au in August.

Vodafone Australia is confident the deal will receive regulatory approval and maintains expectations that the merger will be completed in the first half of 2019.

The ACCC is calling for submissions from interested parties and is scheduled to hand down a final decision on 28 March 2019.