ACCC says hold the phone on $15bn mobile market merger

TPG and Vodafone face a tough battle to overturn the ACCC’s objections to their $15bn merger.

TPG boss David Teoh. Illustration: Sturt Krygsman

TPG and Vodafone face a tough battle to overturn the ACCC’s objections to their $15bn merger, which are based simply on more competitors providing a better market for consumers.

Inevitably the elephant not yet in the room is the government’s decision to ban Huawei from supplying 5G infrastructure, because that will make it more difficult for both Vodafone and TPG to compete in the mobile market.

The ACCC noted yesterday it was “considering whether, absent the merger, TPG would have the capacity to continually invest in its mobile network in a timely way”.

This point will be hammered home by TPG, who will argue that thanks to the government ban it will be forced to build a more expensive and arguably inferior network that will inhibit its plans.

Likewise for Vodafone, while already having an extensive part-Huawei mobile network, installing 5G is a little more complex than simply putting an Ericsson or Nokia box on top of a Huawei network — so the cost will rise. The point being the ACCC’s dream of a four-player market will be thwarted if the cost of building a new network rules one out.

The argument for the merger was to build scale to create a strong third competitor to Telstra and Optus. Maybe by blocking the merger the ACCC will leave the rivals stranded, leaving Telstra untroubled again.

Amid all this, Telstra boss Andy Penn has embarked on a major charm offensive, suddenly making himself available to the media to extol his revolution.

In a speech last year ACCC boss Rod Sims confided: “In my view having four mobile and five major broadband players is to be welcomed, encouraged and, as much as possible, retained over the longer term. Indeed, I am of the view that there is increasing room for a fourth player in the mobile network market.”

This depends on whether, without Huawei, TPG proceeds.

Such threats of withdrawal are of course not new in the merger game and the ACCC is well used to the tactics.

On the issue of the consumer benefits of a four-player market Sims has been commendably consistent for many years.

He likes to quote former Telstra boss David Thodey, who was quoted back in September, 2012, saying: “All the data we’ve looked at around the world says three [operators in a market] are very rational from a pricing perspective. Once we get to four or five is when you start to get behaviour that can be aberrant in terms of shareholder value.”

That behaviour of course means better deals for customers.

TPG and Vodafone now jointly own 5G spectrum but in a three-player market they would come to the table with a less aggressive package. TPG has yet to really roll out a network, so the benefit of a four-player market is different strategies and pricing options for the consumer’s benefit.

Vodafone has started rolling out its fixed-line service and is adding around 6000 customers a month on its NBN-based service.

TPG is an established fixed-line player with a strong brand.

The combination of the two would have been powerful and would clearly threaten Optus but Telstra, as Thodey said, would manage quite nicely in a cosy oligopoly, just as it has in a virtual full service duopoly with Optus.

In mobile, Telstra has around 43 per cent market share, Optus 33 per cent and Vodafone 21 per cent. In NBN-based fixed services Telstra has 55 per cent, TPG 20 per cent, Optus 16 per cent and Vodafone 1.5 per cent.

The Huawei argument will be seen by the ACCC as yet another attempt by companies in a consolidating industry to justify their stance. The ACCC has made the right call by looking at the issues from a customer as opposed to a shareholder benefit. The statement of issues as tipped here was widely expected and means at best the final decision won’t come until the end of March with merger completion in July.

The wording of the statement of issues left little room for thinking the ACCC will change its mind. Any court challenge runs the risk of further delays and of course the reality that, without a tick from the ACCC, the necessary FIRB approval is problematic.

ASIC still toothless

When federal parliament concluded for the year last week it left on the table a range of proposed amendments to boost ASIC’s powers and increase penalties for corporate crooks.

Surprising, given the amount of public heat generated by the royal commission, that our elected representatives, when given the chance to put some words into action, did nothing.

One amendment gave the corporate plod the power to intervene to remove dodgy products, as recommended by David Murray’s committee four years ago, and another increased penalties to $210 million or 10 per cent of turnover.

The ALP wanted bigger fines and wider product intervention powers, as did the plod, but it would have settled for what it could get.

Thanks to the politicians, four years after the government agreed to the changes the net result is a doughnut for ASIC.

‘Retiring’ to the couch

If there was any doubt whether APA boss Mick McCormack was quietly hoping the $13 billion CK Group bid for the company would succeed, yesterday’s news confirmed it. With the deal buried by politics and the concentrated nature of the Australian energy transmission market, McCormack formally handed in his notice to chair Michael Fraser.

After being a starting executive at APA back at its float in 2000, he assumed the top job in 2005 and transformed the entire transmission industry.

Total shareholder returns since listing have beaten the ASX 200 by a stunning 1224 per cent, with the company’s equity value increasing by 20 times — to $10.4 billion.

Today he is attending son Joseph’s graduation in Brisbane with a degree in mechanical engineering but one of his finest moments was in the front bar at the Condamine hotel in 1986 when he designed the east coast gas transmission market on the back of a beer coaster.

This was in his TMOC days working on the Moonie gas line before the company was acquired by AGL in 1988, which then spun off APA in 2000.

The 57-year-old McCormack will now spend some more time back home at Killarney in Queensland but with him working from his “thinking spot” — the couch on his front porch — further corporate work is certain.

There will be not-for-profit work in the indigenous sector and of course some work beating on the drums.

In a recent interview with this column McCormack confided: “The one bit of advice to others who want to be a CEO — learn how to get on with people. If you can’t bring people along with you, you’re buggered.”

As always, McCormack’s one bit of advice is multifaceted, adding: “If you want to take the lead you have to at least pretend that you know the way forward.”

They mightn’t be much as musicians but McCormack ranks his executive team as best in class, meaning he would expect one to be his replacement. As to just who, he is staying well clear.

The names in the mix include transmission boss Rob Wheals, networks chief Sam Pearce, strategy boss Ross Gersbach and lawyer Nevenka Codevelle.