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Could the ACCC block the TPG Telecom Ltd and iiNet Limited merger?

Credit: Cebit Australia

Australia’s competition watchdog has weighed in on the TPG Telecom Ltd (ASX: TPM) and iiNet Limited (ASX: IIN) merger proposal, saying that it was “seeking further information” about how the tie-up could substantially lessen competition in the market for the supply of retail fixed broadband services.

The Australian Competition and Consumer Commission (ACCC) has been considering a potential acquisition of iiNet by TPG since TPG lodged its second bid for the telco on 6 May 2015. Recognising that the proposed transaction would combine two of the five largest suppliers of fixed broadband services across the country, it is exploring the extent to which a tie-up could reduce competitive tensions “in respect of pricing, innovation and service quality.”

Therefore it will need to determine whether the existence of Telstra Corporation Ltd (ASX: TLS), M2 Group Ltd (ASX: MTU), Optus and various junior telecommunications companies will be enough to ensure adequate competition in the market should the transaction proceed.

Pleasingly, the competition watchdog added that “the proposed acquisition is unlikely to raise competition concerns in other markets, including in relation to the supply of wholesale transmission (or backhaul), mobile broadband and voice services.”

As its name would suggest, consumer protection is also one of the ACCC’s top priorities. Part of its considerations has been the concerns it has received from consumers who have been worried that iiNet’s customer service levels could decline in the event that the proposed acquisition proceeds. iiNet is widely considered to be one of Australia’s highest quality telcos but there have been worries that its customer-oriented culture would not be maintained under the management of TPG.

What happens now?

Given the size of the transaction and the implications it could have on Australia’s national broadband market, some concerns were always likely to be raised and investors shouldn’t be too concerned that the ACCC is seeking further information. Rather than suggesting the transaction will not proceed, the Statement of Issues instead provides a preliminary view on the situation and any further lines of inquiry the ACCC wishes to take before it makes a final decision.

The ACCC will invite further submissions from interested parties in response to today’s Statement of Issues, which will be due by 2 July 2015, while a final decision will be deferred until 20 August 2015.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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