Comms minister Fletcher welcomes TPG-Voda merger decision

The Federal Court yesterday approved the long-awaited TPG-Vodafone merger, overturning an earlier ruling by the Australian Competition and Consumer Commission (ACCC).

Reaction was mixed. The Australian Competition and Consumer Commission (ACCC) stuck to its guns, re-iterating its concerns that the deal would reduce competition in the telco sector and that if TPG stands alone and builds a mobile network, it could use its TPG, iiNet and Internode customers to create a viable new mobile carrier.

Macquarie Telecom echoed the regulator’s sentiment, with CEO David Tudehope saying the decision will “worsen competition and leave consumers underserviced and overcharged”.

“Now that the decision has been made to allow the merger to go ahead, the Government and ACCC will need to reconsider how to improve retail and wholesale competition in mobiles,” Tudehope said.

“The telco industry gets twice the number of complaints to the Telecommunications Industry Ombudsman (TIO) as the banking industry’s Australian Financial Complaints Authority (AFCA), its new Ombudsman, even after the Royal Commission," Tudehope said.

“As a result, the telco industry risks losing its social licence.”

But Federal Minister for Communications, Cyber Safety and the Arts Paul Fletcher all-but welcomed the decision and said it "clears the way" for a stronger third player in the mobile market and that it would bring greater competition in the market.

“It is absolutely appropriate that the competition implications of the proposed merger have been very carefully examined by the ACCC and the Federal Court, as the central policy question is how to maximise competition in the mobile market," Fletcher said.

“I have never thought the prospect of a fourth entrant establishing a sustainable business was very great, given the history of the Australian mobile market, with One.Tel in the late nineties and Hutchison some years later both failing to sustain themselves as fourth entrants in the market."

Mobile virtual network operator Amaysim also welcomed the news, saying having three strong mobile operators will create a more sustainable market for companies of its type.

“The Australian mobile market has long been dominated by Optus and Telstra. We believe that the merger will create a more sustainable market with three strong mobile network operators in Australia that can build excellent 5G networks, benefiting consumers,” Amaysim CEO and managing director Peter O’Connell said.

“Mobile virtual network operators, such as Amaysim, then have a wider choice of operators with equally strong and competitive networks: this also benefits consumers.”

“The last thing we want is less network and carrier competition, which is what would have inevitably happened had this very rational merger been blocked. With 5G upon us, it is important that our network operators are strong and capable of making significant infrastructure investments.”

Analyst insights

Financial services multinational Standard & Poor's (S&P) suggested the decision will benefit Telstra, in addition to its own ongoing T22 restructuring initiatives.

“In our opinion, Vodafone's merger with TPG reduces the risk of a flare-up of price competition and increased capital expenditure associated with a fourth mobile network operator aggressively entering the market,” an S&P bulletin on Telstra read.

“In recent years, the Australian mobile market has become susceptible to periodic bouts of intense competition. We assess Telstra's competitors to have less balance-sheet capacity and a greater incentive to generate cash compared with past periods.”

Independent industry analyst Paul Budde told CRN he understands why the ACCC are frustrated about not having four strong competitors in the market.

“However, market and industry reality dictates that Vodafone and TPG each on their own are not strong enough to provide sustainable long term competition to Telstra, Optus and NBN Co (and Google, Facebook, etc),” Budde said.

“You have to be big in the telecoms market to survive. The merger gives the new entity the size it needs to compete both in the fixed and in the mobile telecoms market. While I don’t expect any dramatic changes in the market (e.g. no price war), I do think that we very soon will see some interesting bundling packages on offer from the combined entity as they now have the capability to bring such new products to the market.”

Foad Fadaghi, managing director of Australian market research firm Telsyte, told CRN that the decision now gives the marketplace a lot more certainty.

“[The Federal Court’s decision] should help drive investment, create an environment for innovation, and potentially make bidding for spectrum a little bit better with a third player that has the scale and resources that could make that investment,” Fadaghi said.

Fadaghi notes that TPG as a standalone player had been “very aggressive” in the market and has put pressure on smaller mobile virtual network operators (MVNOs). “That level of competition from TPG might be lifted and help MVNOs find more stability in their business models rather than it being a race to the bottom.”

“Consumers have also benefited from the price competition heavily in the last few years,” Fadaghi added. “It’s also not just about price but it also comes down to network quality and uptime and many other factors. If this decision doesn’t get challenged, it should theoretically help customers achieve more stability in their network options out there.”

Shadow communications minister Michelle Rowland hoped the decision can deliver the certainty the industry needs.

"Our mobile networks are ranked fourth in the world, and mobile prices, in real terms, have declined over the past decade," Rowland said.

"Investment is a critical part of ensuring Australia remains a world leader with high quality networks."

Rowland added that if industry doesn’t have optimal scale, infrastructure synergies, or balance sheets to deliver ongoing investment, Australia "runs the risk of falling behind and not having optimal competition".

"I am of the view that today’s decision provides Vodafone and TPG with the certainty they need to move forward and deliver in the interests of consumers."