Vocus, M2 merger will create more competition say execs

Wholesale business an important part of Vocus strategy

Vocus Communications (ASX: VOC) executives say its planned merger with M2 Group (ASX: MTU) will create more rather than less competition due to a strong wholesale division which helps small ISPs.

Vocus chairman David Spence said on a media call today that it is an “important enabler” of business thorough its wholesale business.

“We see that [wholesale business] as an important part of our strategy and a net positive for competition generally,” he said.

Vocus managing director James Spenceley said the merger strengthens the combined business and creates more competition rather than less.

However, the company will defer to the Australian Competition and Consumer Commission and Commerce Commission in New Zealand for their decisions.

M2 Group chairman Craig Farrow added that the directors of M2 unanimously support the merger in the absence of a superior proposal and subject to an expert’s opinion.

“I believe the future is bright for the combined business,” said Farrow.

“We believe this is a vertical integration of two different telco businesses and we don’t believe there will be too many problems with any of the competition councils in Australia and New Zealand.”

No redundancies are planned as a result of the merger.

Commenting on the proposed merger, Ovum telecoms research director David Kennedy said that Vocus operates primarily in the enterprise and wholesale market which is where the impact will be felt.

“The combined M2 and Vocus networks will provide a strong base for the provision of services to the enterprise and small business segments, and to small independent ISPs who purchase telecommunications capacity,” he said.

“It is getting harder for small ISPs to find a wholesale provider who does not also compete with them in the retail market. In the mobile market, MVNOs must justify their existence by developing compelling offers in market segments and niches that the majors find hard to reach. This will happen in the fixed services market as well.”

According to Kennedy, the merger is a welcome addition of scale for both companies.

M2 challenged TPG's acquisition of iiNet with its own offer, but TPG outbid it, he said.

“This showed that M2 was very interested gaining scale, as it needs to in order to compete with the leading three - Telstra, Optus and TPG - once the NBN is fully rolled out.”

Kennedy said the merger between M2 and Vocus is consistent with the long-term trend towards consolidation in the telecommunications industry.

“The ACCC has warned that it will carefully scrutinise future mergers between major players. We are in the consolidation endgame.”

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