ACCC rejects $1.8bn Telstra-TPG network deal but suggests Optus alternative

A court showdown for control of Australia’s telco network looms after TPG and Telstra’s $1.8bn tie-up was rejected, but a similar deal with Optus was suggested.

A court showdown is looming over Australia’s telco infrastructure, after the competition regulator rejected TPG Telecom’s proposed $1.8bn network tie-up with Telstra but suggested a similar deal with Optus.

Knocking back the deal, the Australian Competition and Consumer Commission on Wednesday cited fears TPG’s proposed regional mobile network sharing would “substantially lessen competition”.

But ACCC commissioner Liza Carver pointed to economic logic in a regional network sharing arrangement with Optus, turning attention to the question of whether Australia’s second-largest telco will now try to sign its own deal with TPG.

The two telcos already have a network sharing agreement across urban areas.

Under the proposed 10-year arrangement, TPG would have decommissioned or transferred its mobile sites in regional and urban fringe areas to Telstra and then acquired mobile network services from Telstra.

TPG would give Telstra access to most of its regional spectrum and, by using part of the Telstra network, TPG’s coverage would increase from 96 per cent to 98.8 per cent of the population.

The consumer watchdog announced on Wednesday that after an extensive public consultation and investigatory process it was not satisfied the benefits of the merger would outweigh the negatives.

“After a very detailed and careful consideration, we think that it’s likely that consumers will be worse off over time if the arrangement is authorised,” ACCC Commissioner Liza Carver said in an interview.

“Mobile coverage, speed, and data allowances are all determined by investment in radio access networks … And the effect [of the arrangement] would be to entrench Telstra’s leadership in regional areas, and consumers would be worse off.”

Optus vice president of regulatory and public affairs Andrew Sheridan.

However, Ms Carver opened the door to a TPG tie-up with Australia’s second biggest telco.

“We see strong economic incentives for TPG and Optus to collaborate in continuing to roll out a second 5G network into regional Australia,” Ms Carver said.

Optus vice president of regulatory and public affairs Andrew Sheridan said collaboration between the two smaller telcos would “make sense” and that “there’s every opportunity for some form of sharing arrangement to be negotiated in the future.”

TPG has previously poured cold water on any potential deal however, ruling it out in a submission to the ACCC in November. It said in a letter that TPG and Optus had discussed a roaming agreement, but TPG had ultimately picked Telstra as its preferred partner.

“Now, having had the benefit of seeing the proposed transaction and its terms, Optus wishes to use the authorisation process to remove Telstra as a competitor in relation to network sharing and leave it free to impose a less attractive, alternative transaction on TPG,” the November letter reads.

Both TPG and Telstra quickly announced they would appeal the watchdog’s decision to the Australian Competition Tribunal, which they’ll need to do within 21 days. The tribunal will then have 180 days to make a final decision.

Ms Carver said the ACCC is confident it has done a thorough analysis of all the available information, and that the tribunal will need to make its decisions based on the exact same material.

“We have had a very careful consideration of 170 submissions, 40 witness statements, thousands of pages of internal confidential documents from all three businesses, and oral evidence of executives,” she said. “We have undertaken a fact-based, through analysis.”

Former TPG chief David Teoh took on the ACCC in the Federal Court in 2019. Picture: Asanka Ratnayake

TPG chief executive Inaki Berroeta said the regulator had ignored the majority of submissions from economic experts and regional groups that supported the deal.

“We are disappointed the ACCC has chosen to ignore the overwhelming evidence submitted from leading economists, competition experts and regional communities outlining the benefits of the proposed arrangement to competition and consumer choice,” he said.

“If it had been authorised, the arrangement would have freed regional Australia from its current mobile duopoly, and the increased competition from TPG would have placed downward pressure on mobile pricing.”

Telstra CEO Vicki Brady labelled the ACCC’s decision a “massive missed opportunity for regional Australia”.

“This innovative agreement will deliver real competition-driven benefits for regional Australia, something recognised by the ACCC in its determination,” she said.

“It also delivers better use of the government’s spectrum assets by unlocking unused spectrum that TPG holds in regional Australia but isn’t using.

TPG chief executive Inaki Berroeta said the regulator had ignored the majority of submissions from supportive economic experts and regional groups. Picture: Adam Yip

“Despite [the] disappointing news, I’d like to thank all the people who recognised the benefits this agreement could bring and spoke up in favour of it. We will keep pushing for the right outcome for you.”

Michelle Lim, the chair of industry lobby group Commpete, which represent Australia’s smaller telcos, said however the decision was “well-considered” and a decisive move for competition.

“Had it been ushered through, the deal would have been another lever entrenching Telstra’s dominance in regional communications,” she said.

“It would have meant decisions over pricing, service availability and service standards are subject to the whims of a single private enterprise, without regulatory guardrails to guarantee value, flexibility and choice for an increasingly essential service.”

The ACCC has long wanted more – not fewer – mobile players, and unsuccessfully tried to block the $15bn merger between Vodafone and TPG in 2019 in a battle that ended up in the Federal Court.

In its statement of preliminary views in September, the ACCC said it accepted Optus’ key argument that it would be disincentivised to invest in regional Australia, a position it reiterated on Wednesday.

Former NSW premier Gladys Berejiklian, now an Optus executive, had called the proposed network merger between TPG and Telstra a “backwards step for millions of Australians”.

Optus executive Gladys Berejiklian. Picture: Jonathan Ng

“We’re extremely concerned that that would be a backward step to an industry which needs more competition,” she said in an interview with The Australian earlier this year.

“It’s called a shared proposal, but in effect it’s a merger. When you strengthen the position of a dominant incumbent, and disincentivise organisations from making future capital investments, that’s not a good thing. And that has the adverse impact of providing less resilience in the network.”

In a bid to try and win over the ACCC, TPG and Telstra had offered court-enforceable undertakings including that the watchdog could reassess the proposed arrangements within eight years.

“After careful consideration, we determined that these undertakings did not change whether the ACCC was satisfied of the relevant competition or public benefit tests against which the ACCC must assess a proposed merger authorisation,” Ms Carver said.

“The proposed arrangements would have an immediate impact on infrastructure competition in Australia and that impact would endure. Even if the arrangements were terminated after eight years, it would be too late to unwind the negative competitive impact.”

TPG shares fell 1.1 per cent on Wednesday to $4.72, giving it a market capitalisation of $9.02bn. Telstra fell 0.5 per cent to $4.02, giving it a market value of $46.45bn.