There little doubt that the future direction of the TPG Telecom Ltd (ASX: TPM) share price and Telstra Corporation Ltd (ASX: TLS) share price will be determined by the Australian Consumer and Competition Commission (ACCC).
The TPG share price took another blow this afternoon as it shed 2.3% to $6.30 while the Telstra share price lost 1.7% to $2.88 when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is down 0.9% in the last hour of trade.
This takes TPM's share price loss to 19% since the ACCC flagged concerns about TPG's merger with Vodafone Australia yesterday.
Dim outlook for telco sector
It will be a summer of discontent among Telstra and TPG shareholders as the competition watchdog will only make its final decision on the deal on March 28 next year.
The share prices of these telcos will be on the backfoot for some months yet as would be investors sit on the sidelines as no one will want to second guess the ACCC's decision.
The ACCC flagged concerns that the marriage between TPG and Vodafone would lessen competition in what the regulator believes is a "concentrated market for mobile services" and that would hurt consumers.
Further, the ACCC noted that Vodafone is an emerging fixed broadband provider (via the NBN) and the merger could impact on price competition in the residential broadband market.
Investor sentiment towards Telstra improved sharply when TPG and Vodafone announced their engagement as intense competition was bringing our largest telco to its knees.
Why the ACCC could still say "yes"
The approval of the merger will hinge on the question about whether Australia can really support four mobile network infrastructure owners.
Guessing the outcome is a mug's game but my feeling is that the merger will get approved. This is because I don't think Australia can support more than three mobile networks and you only need to look at the poor coverage offered by Vodafone in the past as the company struggled to make commercially justify the investment to improve coverage.
TPG was trying to be the industry disruptor by using small-cell technology to rollout a mobile network at a bargain basement price of $600 million.
It intended to do this through a staged rollout where it would only offer data without voice, and then only in some of our largest cities.
It's worth noting that the US has over 50 mobile network owners although there are only four of note that provide true nationwide coverage, according to Wikipedia.
TPG mobile network more bark than bite
Coincidentally, UBS said in a note today that TPG's credibility as a fourth mobile operator has been damaged compared to when it first announced its ambitious expansion in April 2017.
This is because network costs have increased following Huawei's ban, the rollout of TPG's network has been slower than expected and the company's eagerness to merge with Vodafone could be seen as an admission that it had underestimated the resources needed for the buildout of its mobile network.
What this means is that even if TPG remains the fourth force in the mobile market, consumers may not get much pricing benefit as TPG's mobile network doesn't have the reach and scale to pose a real threat to the incumbents.
I think competition from virtual mobile operators like Kogan.com Ltd (ASX: KGN) and Aldi are more important for consumers.
Worries about the impact on the fixed broadband market is even less of an issue in my view given the way the NBN is setup where the barriers of entry to become an NBN reseller is so low.
But as I mentioned earlier, it will take a brave investor to make a big bet against the ACCC.
