Blocking TPG-Vodafone merger will lead to lower mobile prices, ACCC argues

ACCC rejects TPG, Vodafone claims in merger case

If a Vodafone-TPG merger does not go ahead, it is likely to lead to lower mobile prices for Australian consumers, the Australian Competition and Consumer Commission (ACCC) believes.

The ACCC is preparing to argue that it is “likely” TPG will invest in a mobile network and that Vodafone Hutchison Australia (VHA) will find any capital necessary to upgrade its network if the two telcos are prevented from merging.

The competition regulator is defending legal action brought by VHA with the support of TPG that challenges its opposition to the proposed merger between the two companies.

A defence filed with the Federal Court claims that if the merger doesn’t go ahead there “is at least a real chance” over the next five years that TPG will resurrect its plan to roll out Australia’s fourth mobile network.

TPG, which has so far only operated as a mobile reseller, in 2017 announced its long-anticipated move to launch a mobile network, utilising its significant spectrum holdings. In January 2019, however, it said it was ditching the plan.

The telco cited the government’s ban on the use of Huawei gear for 5G as the reason; although TPG was rolling out a 4G network, the ban left it without a viable pathway to eventually upgrade its mobile service to the newer wireless standard.

TPG in a Federal Court filing elaborated on its reasoning, arguing that only Huawei would offer the equipment it would need to upgrade a primarily small cell network to 5G in a reasonable timeframe.

TPG’s announcement that it was ceasing the implementation of a new mobile network came not long after the ACCC revealed its was uneasy about the proposed merger with VHA in part because it would rob Australia of a fourth mobile network operator (MNO). The telco did not cite the ACCC’s views in the announcement that it would not continue with the roll out.

The ACCC’s defence states that there is “no realistic prospect” of a new entry into Australia’s retail mobile network by an MNO during the next half decade “other than that of TPG”, and that mobile virtual network operators (MVNOs — such as TPG is currently) only “provide limited competition, relative to MNOs, in the Retail Mobile Market”.

TPG has been a “vigorous, effective and aggressively-pricing competitor” in the markets it has previously entered and would likely be the same in the retail mobile market, the ACCC court filing states.

TPG mobile services would likely be “particularly attractive to customers or customer segments who are also attracted to the retail mobile services offered by VHA, and also, Optus,” the document adds; those customers are likely to be in metro areas, be less concerned with regional coverage, and be price-sensitive.

The response from VHA and Optus to a TPG mobile play would likely place competitive pressure on Telstra’s prices in the “premium segment” of the retail mobile market, the ACCC believes. A merged telco, however, would have “less incentive” than a new entrant like TPG to gain market share through low prices.

The ACCC also rejects VHA’s claims that it would struggle to fund necessary upgrades to its mobile network to compete with Optus and Telstra.

It is “intrinsic to being an MNO that it undertakes ongoing investment in its mobile network infrastructure and in spectrum” and it is “therefore likely that VHA will undertake the level of investment sufficient to keep network congestion sufficiently low that it is capable of supplying competitive services,” the ACCC argues.

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Tags VodafoneTelecommunicationsTPGAustralian Competition and Consumer Commission (ACCC)Vodafone Hutchison Australia (VHA)

More about AustraliaAustralian Competition and Consumer CommissionHuaweiHutchisonOptusVHAVodafone

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