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Telstra share price jumps 5% after TPG pulls the pin on mobile entry

Australian telcos are the talk of the town today after TPG Telecom Ltd (ASX: TPM) announced that it was pulling the pin on the roll-out of its 4G mobile network.

The Telstra Corporation Ltd (ASX: TLS) share price is up 4.9% this morning as the risk of TPG crashing onto the mobile scene looks to be eliminated once and for all. There has been significant uncertainty over the last six months about TPG’s entry, driven primarily by uncertainty surrounding the TPG-Vodafone merger.

The TPG share price is up 3.1%, having been down slightly in earlier trade. The (Vodafone) Hutchison Telecommunications (Aus) Ltd (ASX: HTA) share price is flat at 12¢.

What does the news mean for Australian telcos?

TPG was set to become the fourth mobile network operator in Australia in a move that would have placed additional pressure on the already highly competitive mobile services space.

The company had talked of extremely low-priced plans—including a $9.99 a month unlimited data plan—which, if implemented, would have been certain to disrupt the incumbents and squeeze industry margins. This may have been a bluff to make a merger look more attractive to Vodafone, but the threat was still there.

News of the TPG-Vodafone merger alleviated worries surrounding TPG’s entry into the mobile market. TPG would incorporate its mobile network into Vodafone’s existing network, and the threat of an aggressive market entrant looked to be nullified. The merger appeared to make perfect sense, as it would combine Vodafone’s mobile services business with TPG’s position as Australia’s second-largest internet service provider.

But then the ACCC had to rock up and spoil the party. The competition watchdog raised preliminary concerns that preventing TPG’s entry as an independent competitor into the concentrated mobile services market would result in a ‘substantial lessening of competition’. Having twice pushed back the expected date of its highly anticipated decision, we likely won’t hear of the ACCC’s judgement on the merger until mid-April.

Today’s announcement takes the wind out of the ACCC’s sails and will make it difficult to block the deal. After all, the combination of the two companies will no longer be removing TPG as a competitor in the mobile market.

While TPG didn’t state the increased likelihood of a merger as the reason for the decision, it is undoubtedly part of the game plan.

11th-richest person in Australia and TPG Executive Chairman, David Teoh said: ‘While TPG remains committed to the planned merger with Vodafone Hutchison Australia, the Company must continue to make independent business decisions in the best interest of TPG shareholders pending the outcome of the merger process.”

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The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended TPG Telecom Limited. 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 Scott Phillips.

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