Court looms as Vodafone, TPG merger blocked

Vodafone Australia and TPG Telecom will take the ACCC to court after it rejected their $15 billion merger.

Vodafone Hutchison Australia boss Inaki Berroeta. Picture: Hollie Adams

Vodafone Australia and TPG Telecom will take the competition regulator to court after it rejected their $15 billion merger, with Vodafone boss Inaki Berroeta declaring the ACCC has overstepped the mark.

Mr Berroeta said the Australian Competition & Consumer Commission was forcibly trying to reshape the mobile market by rejecting the merger in its bid to see a fourth mobile operator enter.

“The ACCC is trying to create an ideal market structure which doesn’t gel with reality. The regulator is fixated on setting the structure of the market,” he told The Australian.

“It’s a dangerous thing when a regulator gets involved like that.”

TPG last night said consumers may end up paying the price for the ACCC’s decision.

“While we respect the ACCC’s process, its decision has significant implications for Australian consumers, and in our view must be challenged,” it said in a statement.

“TPG considers that there is a compelling case to seek orders from the Federal Court of Australia that the proposed merger will not, and is not likely to, substantially lessen competition.”

With the telcos and the ACCC now set to square off in court, TPG and Vodafone have extended the date for the implementation of the mooted merger to August 31, 2020.

The news sent TPG shares into a tailspin, with the telco ending yesterday’s session 13.5 per cent weaker at $6.07, wiping almost $1bn off its market value.

The legal tussle between the telcos and the ACCC is expected to be protracted, with TPG and Vodafone expected to argue that there is little chance of TPG emerging as a fourth operator.

Both will highlight the complementary nature of the two businesses and the fact that a combination of TPG’s fixed and Vodafone’s mobile networks would deliver a better outcome for consumers.

TPG Telecom closed down 95c

ACCC boss Rod Sims told The Australian that allowing the merger to go ahead would have locked in a market structure where three mobile operators called the shots.

“We always knew that a court challenge was a possibility and we are ready for it. Ultimately we had to make a judgment that’s in the best interest of consumers and locking in the existing structure doesn’t help them,” he said.

Telstra, Optus and Vodafone have more than 87 per cent share of the mobile market, and Mr Sims said the merger would put to bed any chance of a fourth mobile operator emerging.

“We don’t know how the market will develop but whatever changes do happen we want them to be a part of a competitive process between operators,” he said.

“TPG is the best prospect Australia has for a new mobile network operator to enter the market, and this is likely the last chance we have for stronger competition in the supply of mobile services.”

While TPG in January stopped rolling out its $600 million mobile network, citing the ban on Huawei’s 5G equipment, Mr Sims said there was no reason why the telco could not restart the process.

“We still believe they can build a network, and will build it, given the investments they have made so far and the imperative is there for them to do so,” he said.

“TPG already has mobile spectrum, an extensive fibre transmission network which is essential for a mobile network, a large customer base and well-established telecommunications brands.”

Venture Insights’ managing director Nigel Pugh said TPG’s decision to put its mobile ambitions on hold was never going to sway the ACCC’s final verdict.

“On its own, TPG’s ‘cease network’ announcement was unlikely to swing the ACCC’s existing merger concerns, which it had published in December. On the face of it, the regulator has made the expected decision in terms of consumer outcomes and competitive tension,” he said.

“While the merger was clearly positive for Vodafone and TPG, that was not the test that the ACCC was concerned with.”

However, New Street Research telco analyst Ian Martin said the ACCC’s logic did not quite add up and the regulator was being too optimistic in its belief that TPG would build a mobile network.

“TPG is not going to build a mobile network on its own, so the regulator’s decision doesn’t make sense,” he told The Australian.

The ACCC’s opposition to the merger holds broader implications for the telco market, with Telstra and Optus now having to revisit the idea of potentially dealing with a fourth mobile operator.

TPG’s spectrum portfolio also leaves open the potential for it to consider a fixed wireless product, similar to the one being developed by Optus, that looks to bypass the National Broadband Network.

It could also choose to sell the spectrum to other operators, a process that will be subject to ACCC scrutiny.

Mr Martin was also critical of the way the ACCC revealed its decision to the market.

The ACCC, which was expected to formally announce its ­position today, inadvertently published its decision ahead of schedule. The watchdog is investigating how the error occurred.