ACCC opposes TPG-Vodafone merger
- 08 May, 2019 15:42
The Australian Competition and Consumer Commission (ACCC) has revealed it will oppose a proposed merger between TPG and Vodafone Hutchison Australia (VHA).
A decision was expected to be announced tomorrow, but the ACCC released a short statement this afternoon after details of the decision were inadvertently published on its online mergers register.
In a longer statement sent later in the afternoon, the ACCC said that Australia already had concentrated mobile and fixed broadband markets. The competition regulator said that it believed if the merger doesn't go ahead, TPG may resume its efforts, halted in January, to roll out a new mobile network.
ACCC chair Rod Sims said that 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,” Sims said.
“Vodafone has likewise felt the need to enter the market for fixed broadband services. These moves by TPG and Vodafone are likely to improve competition and future market contestability,” the ACCC chair said.
TPG “is the best prospect” for a fourth mobile operator in Australia he said.
“Wherever possible, market structures should be settled by the competitive process, not by a merger which results in a market structure that would be subject to little challenge in the future,” Sims said. “This is particularly the case in concentrated sectors, such as mobile services in Australia.”
Sims said that ACCC had concluded that if the merger does not proceed there “is a real chance” that TPG will proceed to roll out a mobile network.
TPG and VHA say they will take Federal Court action over the ACCC decision.
The ACCC in December last year issued a statement of issues detailing a range of concerns about a proposed merger between the two telcos.
A particular concern, the ACCC said, was that the proposed merger would “substantially lessen competition” in the retail mobile services market, as well as potentially reduce wholesale mobile services competition. The statement also said the ACCC saw potential issues around competition in the retail fixed broadband services market.
TPG in April 2017 had announced that it intended to build a national 4G mobile network that would reach 80 per cent of Australia’s population, leveraging its wireless spectrum holdings. TPG began rolling out small cell infrastructure in major cities and in May 2018 detailed its plan to launch an unlimited mobile data product, with initial coverage in Adelaide, Brisbane, Canberra, Melbourne and Sydney.
Shortly after VHA and TPG in August last year announced their intention to merge, the two telcos established a joint venture to bid in the government's auction of 3.6GHz spectrum. That band is being used to deliver Australia’s first 5G services. The joint venture spent $263 million on 131 lots in the auction, making it the second-highest spender after Telstra.
Just over a month after the ACCC released its statement of issues, TPG said it was ending the rollout of a mobile network. In its January 2019 announcement, the telco blamed a government decision to ban the use of Huawei-manufactured equipment in 5G networks. TPG used Huawei gear in its 4G rollout and said that the government’s decision left it with no realistic upgrade path to 5G.
In February this year TPG said that following a review it had reduced the value of the spectrum licences it holds by $92 million and would write-down $76 million in capex associated with mobile network infrastructure.
A merged company would bring together VHA’s 6.4 million mobile subscribers (around a fifth of the Australian mobile market) and TPG’s 1.9 million fixed-line broadband subscribers (about 22 per cent of the market). TPG has a mobile base of around 400,000 subscribers (which are already using the VHA network following a 2015 MVNO deal). Vodafone also has a small base of NBN subscribers after a 2018 launch of fixed-line services.
VHA and TPG have boasted of their highly complementary telco infrastructure. TPG has Australia’s second-largest fixed voice and data network, with more than 27,000 kilometres of fibre and connections to all 121 of the NBN’s Points of Interconnect, as well as DSLAMs in 400+ exchanges. VHA has more than 5000 mobile sites and a 4G network that it says covers 22 million Australians, as well as access to Vodafone’s and Hutchison’s international network services.
Rumours of possible merger between the two businesses have periodically circulated in the telco industry over the years.
It wasn’t until August 2018 that the two companies officially revealed that they had engaged in “exploratory discussions” over a possible deal — and then late that month confirmed that they intended to push ahead with a “merger of equals”.
Under the proposal, the combined entity would be listed on the ASX as ‘TPG Telecom Limited’. The 2018 merger announcement said that there were no changes “currently planned” to any of the existing brands of the two companies (TPG’s brands include prominent consumer ISPs iiNet and Internode).
The new TPG Telecom Limited would have an implied enterprise value of $15 billion. For the 12 months to June 2018, TPG and VHA enjoyed combined revenue of $6.02 billion. The two had combined pro forma EBITDA of $895 million for the period.
A presentation on the proposal said that TPG shareholders would hold 49.9 per cent of the equity of the combined entity, with the remainder held by VHA, which is a 50-50 joint venture between Hutchison Telecommunications (Australia) (HTA) and Vodafone Group Plc.
Based on shareholdings at the time of the August announcement, TPG founder, CEO and chairperson David Teoh would hold 17.12 per cent of the new company’s shares, with Washington H. Soul Pattinson Limited holding 12.61 per cent, other TPG shareholders 20.17 per cent, and Vodafone Group and HTA each holding 25.05 per cent.
The companies said that Teoh would be non-executive chairperson of the merged group, with VHA’s current chief executive, Iñaki Berroeta, managing director and CEO.