ACCC expresses concerns about TPG merger with Vodafone

TPG and Vodafone say they remain confident about their $15bn merger, despite ACCC concerns about competition.

Vodafone and TPG plan to merge into an $15 billion unit. Pic: AFP

The Australian Competition and Consumer Commission is not convinced that the mooted $15 billion merger between TPG Telecom and Vodafone Hutchison Australia should be allowed to proceed, with the regulator worried the tie-up will cut competition in the telco market.

While both TPG and Vodafone remained confident the merger will still be approved, ACCC boss Rod Sims warned the tie-up could remove the pressure that has seen all of the telcos compete aggressively on price.

“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,” he said in a statement.

“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,” he added.

Meanwhile, Mr Sims also said that the watchdog needs to carefully consider the likely impact of removing Vodafone as a competitor in the fixed broadband market.

“Although Vodafone is currently a relatively minor player in fixed broadband, we consider it may become an increasingly effective competitor because of its high level of brand recognition and existing retail mobile customer base.”

TPG Telecom shares dived almost 15 per cent to be at $6.60 at 11.20am (AEDT), with investors spooked by the prospect of the ACCC rejecting the merger. Shares in Hutchison Telecommunications were down 25per cent at 10.5 cents.

The regulator is now seeking more submissions from interested parties on the issues it has raised by January 18, 2019. The ACCC’s final decision on the merger is scheduled for March 28 2019.

TPG Telecom and Vodafone Hutchison Australia announced their plan to join forces in August.

Under the terms of the deal, first reported by The Australian’s DataRoom, TPG will own 49.9 per cent of the merged group, with Vodafone’s shareholders (Vodafone and Hong Kong-based CK Hutchison Holdings) owning the remaining 50.1 per cent.

The combined entity will bring together TPG’s more than 1.9 million fixed-line residential subscribers and Vodafone’s roughly six million mobile-service subscribers.

It will have a combined revenue of over $6bn and EBITDA of over $1.8bn.

The new company will still be known as TPG Telecom and will be listed on the Australian Securities Exchange, with TPG Telecom founder David Teoh to remain as non-executive chairman, while Vodafone Australia’s existing boss Iñaki Berroeta will become the managing director and CEO.

Mr Berroeta said that he wasn’t overly concerned about the issues raised by the ACCC, with Vodafone confident that the merger will get the green light from the ACCC next year.

“This proposed merger is a significant transaction, and we respect the need for the ACCC to make a carefully considered decision, so today’s announcement wasn’t unexpected,” he said.

“Customers will be the big winners of a proposed merger between VHA and TPG Telecom, and we’ll continue to engage with the ACCC as we have done over recent months.

“Increased investment requires increased scale, and the proposed merger will enable the merged entity to take competition in the market to the next level,” he added.

Still confident: Vodafone CEO Inaki Berroeta. Pic: Hollie Adams

TPG Telecom is also confident about getting the tick from the regulator, saying that the statement of issues doesn’t necessarily mean that the deal will be scuttled by the ACCC.

“The statement of issue is a preliminary view by the ACCC of its investigations into the scheme, importantly the statement of issue does not constitute a final decision by the ACCC.

“TPG acknowledges the importance of the ACCC process and looks forward to continuing to work with the ACCC with a view to addressing the matters it has raised today and to progressing the clearance process,” it added in a statement.