This afternoon the TPG Telecom Ltd (ASX: TPM) share price and the Vodafone Hutchison Australia (ASX: HTA) share price crashed lower after the Australian Competition and Consumer Commission (ACCC) accidentally released its decision to oppose their merger earlier than expected.
Due to the inadvertent release of its decision, the competition watchdog wasn't ready with its full statement on the matter. This has since been released and is summarised below:
The ACCC noted that Australia already has a very concentrated mobile services market, with the three network operators, Telstra Corporation Ltd (ASX: TLS), Optus and Vodafone, having a combined market share of over 87%.
It also noted that the fixed broadband market is equally concentrated, with Telstra, TPG and Optus having a combined market share of approximately 85%.
ACCC chair, Rod Sims, said: "Broadband services are of critical importance to Australian consumers and businesses, across both fixed and mobile channels. Given the longer term industry trends, TPG has a commercial imperative to roll out its own mobile network giving it the flexibility to deliver both fixed and mobile services at competitive prices. It has previously stated this and invested accordingly."
Similarly, the ACCC believes that Vodafone needs to enter the market for fixed broadband services and doing so would "improve competition and future market contestability."
In light of this, the ACCC believes the proposed merger will reduce competition and contestability in the fixed broadband services market and "substantially lessen competition in the supply of mobile services because the proposed merger would preclude TPG entering as the fourth mobile network operator in Australia."
But didn't TPG Telecom cancel its mobile network rollout?
The competition watchdog noted that TPG announced that it was ceasing that rollout of its mobile network using Huawei equipment as a result of the Federal Government's 5G security guidance.
But it believes "TPG has the capability and commercial incentive to resolve the technical and commercial challenges it is facing, as it already has in other markets."
This is because it "already has mobile spectrum, an extensive fibre transmission network which is essential for a mobile network, a large customer base and well-established telecommunications brands."
Mr Sims added: "TPG is also facing reducing margins in fixed home broadband due to the NBN rollout. Further, there is the growing take-up of mobile broadband services in place of fixed home broadband services which is expected to increase especially after the rollout of 5G technology."
"After thorough examination, we have concluded that, if this proposed merger does not proceed, there is a real chance TPG will roll out a mobile network."
Doing so would be a big positive for Australian consumers according to Mr Sims.
He said: "TPG has a proven track record of disrupting the telecommunications sector and establishing itself as a successful competitor to the benefit of consumers. TPG is likely to be a vigorous and innovative supplier of mobile services in Australia, offering cheaper mobile plans with large data allowances, and competing strongly against incumbents Telstra, Optus and Vodafone."
What now?
Both TPG Telecom and Vodafone Australia have acknowledged the ACCC's decision.
Vodafone Hutchison Australia's chief executive officer, Iñaki Berroeta, advised that the company remains firmly committed to the merger.
He said: "VHA respects the ACCC process, but we believe the merger with TPG will bring very real benefits to consumers. We have therefore decided that VHA should, together with TPG, pursue approval of the merger through the Federal Court."
TPG Telecom's executive director, David Teoh, echoed this view.
Mr Teoh: "While we respect the ACCC's process, its decision has significant implications for Australian consumers, and in our view, must be challenged."
He added: "TPG considers that there is a compelling case to seek orders from the Federal Court of Australia that the proposed merger will not, and is not likely to, substantially lessen competition. TPG therefore intends, together with VHA, to pursue proceedings in the Federal Court to seek appropriate orders consistent with that view at the earliest possible time."
