TPG-Vodafone merger could create a less competitive market: ACCC

In a preliminary review of the proposed merger between Vodafone and TPG, the consumer watchdog revealed a potential impact on Australia's mobile broadband markets.

The Australian Competition and Consumer Commission (ACCC) expressed competition concerns regarding the merger.

“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,” ACCC chair Rod Sims said.

“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.”

Sims also said that the merged TPG-Vodafone would not have the incentive to operate in the same way, and competition in the market would be reduced as a result.

"A mobile market with three major players rather than four is likely to lead to higher prices and less innovative plans for mobile customers,” Sims added.

In its statement of issues the ACCC concerns are that competition would be lessened in retail mobile services, wholesale mobile services, and supply of retail fixed broadband services.

Vodafone responded with saying that a statement of issues is a common interim step in the ACCC’s merger review process, which sets out issues for further consultation. VHA (Vodafone Hutchinson Australia) will consider the matters raised in the ACCC’s statement and provide comprehensive responses in due course.

"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,” VHA CEO Iñaki Berroeta 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,” Berroeta added.

Both companies are waiting on a decision from the Federal Court, approval from TPG shareholders and other regulatory approval processes in order to proceed with the merger.

Vodafone expects the merger be completed in the first half of 2019.

In August, both companies confirmed plans to merge in Australia with the combined entity set to create a $15 billion “challenger” in the market.

The ACCC will continue to analyse the merger focusing also on 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,” Sims said.

The ACCC will also look into the longer-term impact of the proposed merger, given the likelihood of increased take-up of mobile broadband services in place of fixed home broadband services in the future, especially after the roll out of 5G technology.

“The ACCC is continuing to consider whether operators will need to offer both mobile and fixed broadband services in the longer-term to remain competitive, meaning that TPG and Vodafone will necessarily be closer competitors in the future,” Sims said.

The final decision by the ACCC is scheduled for 28 March 2019.

TPG’s reported earnings and net profit have taken a hit during the 2018 financial year, ending 31 July.

Reported earnings before interest, tax, depreciation and amortisation (EBITDA) took a hit from $890.8 million in FY17 down to $841.1 million in FY18. Net profit slid from $413.8 million down to $396.9 million. Revenue slightly rose from $2.490 billion to $2.495 billion.