ACCC clears Vocus to buy Nextgen

ACCC approval for Vocus’s $807m Nextgen takeover may spell an end to rampant telco consolidation.

Vocus chief Geoff Horth says the Nextgen deal is now on track to close in October. Pic: Hollie Adams

Vocus Communications’ $807 million takeover of Nextgen Networks has received the green light from the competition watchdog, with the deal likely bringing an end to the rampant consolidation seen in the telecommunications sector over the past few years.

In a statement this morning, the Australian Competition and Consumer Commission said it would not stand in the way of the transaction given the services provided by Nextgen and Vocus (VOC) scarcely overlap.

The approval comes at an intriguing juncture, with analysts suddenly jumpy about the long-term impact of the NBN on the margins of the key broadband players and, more specifically, those of TPG and Vocus.

The two combined have lost a combined $3.3 billion in valuation across the past two trading sessions.

ACCC chairman Rod Sims said the Nextgen deal faced “close scrutiny” as it weighed the impact on smaller broadband providers given the recent shrinkage of the telecommunications sector to four main players: Telstra, Optus, TPG Telecom and Vocus.

“There was very little concern raised by market participants,” he said.

“Small broadband providers say they are not generally reliant on Nextgen to be able to compete.

“In addition, excess capacity in the wholesale transmission market provides an incentive for providers of wholesale transmission to sell that capacity, even if they are vertically integrated.”

Mr Sims again warned the sector any further M & A activity was unlikely to receive its support.

“While this proposed acquisition did not raise concerns, the ACCC will continue to keep a close watch on competition in the telecommunications industry especially given recent consolidation and increased vertical integration,” he said.

“The four largest retail service providers supply over 90 per cent of broadband services in Australia. Any future potential mergers or acquisitions that increase concentration can expect to receive close examination from the ACCC.”

Vocus welcomed the findings of the ACCC, saying the deal was now on track to close in October.

“We are extremely pleased with the announcement from the ACCC and will move as quickly as possible to close the transaction and integrate the business under the Vocus umbrella,” chief executive Geoff Horth said.

“We will be working to ensure that we leverage the benefits of our expanded infrastructure platform and increased scale across our customer base.”

Vocus took the opportunity of the ACCC announcement to also attempt to assuage fears around its growth, spruiking a positive start to fiscal 2017.

“The Vocus corporate and wholesale business continues to perform strongly, exceeding new sales targets in the first quarter of FY17 and will be further strengthened with the ability to target new customer segments and markets following the integration of the Nextgen assets,” Mr Horth said.

“The company’s NBN subscriber base has continued to grow strongly since fiscal year end with a 21.7 per cent increase in active consumer subscribers since June 30.

“The average gross margin per subscriber in dollar terms has remained constant, with NBN margins in line with bundled copper broadband margins.”

Vocus shares have lost 3.6 per cent and 10 per cent in the past two trading days, respectively.