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ACCC has concerns over TPG-Vodafone merger

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The Australian Competition and Consumer Commission (ACCC) has said it needs more time and information to consider the merger between TPG and Vodafone Australia, with the consumer watchdog saying it is unclear as yet whether it would substantially lessen competition in the telecommunications market.

The ACCC released a statement of issues on Friday morning outlining concerns it has over TPG not becoming Australia’s fourth mobile carrier. It is also looking into the long-term mobile impact as 5G begins to be deployed.

“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. Our preliminary view is the merged TPG-Vodafone would not have the incentive to operate in the same way.”

The ACCC said it would also look into whether removing Vodafone as a fixed broadband competitor would impact competition.

“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 added.

However, Vodafone said it remains confident the merger will be approved in the first half of 2019.

“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,” Vodafone CEO Inaki Berroeta said on Friday morning.

“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.

“The merged company will have significantly increased ability to invest in networks, new technologies, and competitive plans and products for Australian customers.”

The Statement of Issues [PDF] (https://www.accc.gov.au/system/files/public-registers/documents/Statement%20of%20Issues%20-%2013%20December%202018.pdf) says the ACCC is concerned that there would be higher prices and more restrictive conditions for wholesale services in the mobile market, and higher prices and lower-quality services including lower data inclusions or poor performance across retail fixed broadband.

“The ACCC is also considering whether when 5G mobile technology becomes commercially available in the near future, TPG and VHA may, in the absence of the merger, compete in a market for retail broadband services using either mobile or fixed networks (retail home broadband services),” the ACCC added.

“In this case, the proposed merger may substantially lessen competition in that market.”

The ACCC is accepting submissions until January 18, 2019, on the extent to which wholesale and retail customers think the “geographically limited network” proposed by TPG will be a viable alternative to existing mobile networks; whether TPG and Vodafone would compete against each other in fixed and/or mobile services if the merger is not approved; whether the merger would limit MVNOs in accessing wholesale mobile services; and whether Vodafone would gain an advantage in providing retail home broadband services in comparison to other new entrants.

The ACCC is anticipating making a final decision on March 28.

Earlier this week, the TPG-Vodafone joint venture Mobile JV had announced winning 131 lots of 5G spectrum in the 3.6GHz auction hosted by the Australian Communications and Media Authority (ACMA), paying over AU$263 million for the holdings across metro and regional areas.

Berroeta said winning the spectrum would allow the merged company to continue preparing for 5G, but said the federal government should make more 5G spectrum available.

“We have been preparing for the evolution to 5G for several years, and the acquisition of spectrum licences in metropolitan, outer metropolitan, and regional areas brings 5G another step closer to reality,” Berroeta said.

“The 60MHz holdings the JV has secured in Sydney, Melbourne, Brisbane, Adelaide, Perth and Canberra give us a strong 5G spectrum capability in each of these major cities.”

“We are in the final stages of virtualising VHA’s core network. We have completed our dark fibre transmission rollout and are finalising our detailed infrastructure planning, while leveraging the expertise of our global shareholders.

“Launching a new generation mobile network is a multi-layered evolutionary process which involves much more than putting some new antennas on poles, and we are progressing all elements of our 5G plans.”

TPG-Vodafone acquired 12 lots each in Sydney, Melbourne, Canberra, Brisbane, and Adelaide; three lots in Perth lower band; nine in Perth upper band; eight each in North Queensland, Central Queensland, Regional Northern NSW/Southern Queensland, Regional Victoria, and Tasmania; six in Regional Southern/Western NSW; four in Regional South Australia; and nine in Regional Western Australia.

The news followed Sims telling Senate Estimates in October that while allowing Vodafone and TPG to jointly bid for 5G spectrum would reduce competition during the auction, it will have the opposite effect for the telecommunications market.

TPG CEO David Teoh had in August said a merged entity combining his company with Vodafone Hutchison Australia would be “very aggressive”, with the new telco to possibly provide better pricing on bundled fixed and mobile offers than its previously announced AU$9.99 a month plans.

“With the merger of the two companies, I think we are going to be a leading challenger, and we are going to be very aggressive; we are going to bring value to the consumer,” Teoh said.

“We have put a lot of money in the spectrum and in the planning on our start to roll out a very dense mobile network.”

TPG and Vodafone Australia in August announced that they would proceed with their merger — after confirming a week earlier that they had entered discussions — to form a telecommunications giant that they say will have an enterprise value of around AU$15 billion.

The new TPG would see Vodafone Australia CEO Inaki Berroeta serve as CEO and Teoh as chair, and will produce revenue of AU$6 billion, EBITDA of AU$1.8 billion, and have an operating free cash flow of AU$900 million, the companies claimed.

It would be owned 50.1 percent by Vodafone Australia shareholders and 49.9 percent by TPG shareholders, and is expected to hold 20 percent of the Australian mobile market and 22 percent of the fixed-line broadband market upon merging.

“The merger will create a more effective challenger to Telstra and Optus, with an integrated fixed and mobile offering and a pro forma enterprise value of approximately AU$15 billion,” the companies said.

The merger remains dependent on shareholder and regulatory approvals.

TPG has also given required notification to the United States Federal Communications Commission (FCC); completed its Committee on Foreign Investment in the United States (CFIUS) application; and lodged formal notification to Singapore’s Info-communications Media Development Authority (IMDA).

In July, Vodafone posted a first-half net loss of AU$92.3 million on revenue of AU$1.8 billion. TPG’s full-year net profit for FY18 was AU$397 million, while revenue remained stagnant at almost AU$2.5 billion for the year.

TPG’s Singapore operations will be spun off into a separate company, with the telco set to launch Singapore’s fourth mobile network by the end of 2018.

Updated at 9.45am AEDT, December 13: Added further detail on Statement of Issues

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