ACCC says iiNet-TPG merger could hurt market

Australia's competition watchdog has raised concerns that the takeover of internet service provider iiNet by rival TPG would substantially lessen competition in the market and negatively affect customer service.

The ACCC today outlined its preliminary stance on TPG's proposed $1.56 billion acquisition of iiNet and approached the market for views on the effect the takeover would have on both the industry and end users.

TPG's acquisition of iiNet would merge two of the five biggest fixed broadband providers into the country's second largest behind Telstra.

The ACCC has asked the market whether the takeover would reduce competition in pricing, innovation and service quality, after receiving numerous submissions from customers worried about service quality should iiNet be merged into TPG.

iiNet shareholders and customers have highlighted concerns about the future of the iiNet brand, customer service levels and customer advocacy under the rule of the famously low-cost TPG.

TPG has said it intends to retain the iiNet brand.

"iiNet is an important competitor in the market for supply of retail fixed broadband services, and has a particular focus on customer service," the ACCC wrote today.

"The ACCC’s preliminary view is that the acquisition of iiNet may lead to a substantial lessening of competition, potentially resulting in higher prices and/or degradation of the non-price offers available in the market, including customer service."

While the acquisition would increase the extent to which TPG is vertically integrated, it was unlikely to affect the level of competition in the wholesale data transmission market, the watchdog said.

"If the proposed acquisition proceeds, the merged entity would likely have an incentive to use its own wholesale transmission network," the ACCC wrote.

"This would reduce iiNet’s demand for wholesale transmission services from other third party transmission providers. The ACCC’s preliminary view is that this would be unlikely to lead to a substantial lessening of competition in any relevant market."

The ACCC also does not expect any negative effect to competition in mobile broadband and voice services.

It will accept submissions from interested parties until 2 July, and will make its final decision by 20 August.

The iiNet board gave its approval to TPG's latest bid after the ISP decided to offer iiNet shareholders a choice of shares or cash following negative feedback to its initial $1.4 billion all-cash proposal.

TPG was forced change and hike its bid to to $1.56 billion after rival M2 swooped in with a $1.6 billion counter offer. TPG is offering $9.55 per iiNet share, including a $0.75 special dividend. 

Shareholders can choose between cash or scrip, excluding the special dividend which is to be paid in cash. TPG has capped its share offering at 27.5 million TPG shares.