Federal Court clears way for TPG-Vodafone merger

The Federal Court of Australia has cleared the way for TPG Telecom and Vodafone Australia to merge, creating a $15 billion telco with the scale to go head-to-head with Telstra and Optus.

Justice John Middleton ruled in favour of the merger, overturning the Australian Competition and Consumer Commission’s (ACCC) May 2019 rejection of the deal.

Middleton cited TPG not going ahead with its plans to roll out a mobile network in early 2019 as a justification of the merger.

In an ASX announcement (pdf), TPG chairman David Teoh said "TPG is very pleased with the Federal Court decision and looks forward to combining with [Vodafone Australia] to create Australia's newest fully integrated telecommunications operator. We will work to finalise the other conditions to the merger as soon as possible."

The ACCC also released a statement on the decision, reiterating its concerns over competition.

“Australian consumers have lost a once-in-a-generation opportunity for stronger competition and cheaper mobile telecommunications services with this merger now allowed to proceed,” ACCC chair Rod Sims said.

“Mobile telecommunication services are integral to Australia’s social and economic future and Telstra, Optus and Vodafone already control almost 90 per cent of the market. There is clear evidence that consumers pay more when markets are concentrated.”

Sims added that the agency is concerned that mobile data prices will be higher than they would be otherwise, and was reinforced by statements from other teclos welcoming the merger.

“We will continue to oppose mergers that we believe will substantially lessen competition, because it’s our job to protect competition and, in doing so, ensure that Australian consumers enjoy the benefits of competition,” Mr Sims said.

“We stand by our decision to oppose this merger. If the ACCC won 100% of the cases we took it would be a sign we weren’t doing our job properly; by only picking ‘safe’ cases and not standing up for what we believe in.”

In Vodafone's statement (pdf) on the matter, Australian CEO Iñaki Berroeta said it was a great outcome for the Australian economy as it would allow for greater investment in next generation networks including 5G.

“It’s been 18 months since we commenced the approval process for this merger and we’re very keen to move forward and deliver these benefits as soon as possible,” Berroeta said.

“We have ambitious 5G rollout plans and the more quickly the merger can proceed, the faster we can deliver better competitive outcomes for Australian consumers and businesses.”

Berroeta added that the lengthy process to approve the merger, plus Australia's ban on Huawei supplying its keenly-priced 5G kit, had given "free kicks" to competitors for some time.

“For the first time, Australia will have a third, fully-integrated telecommunications company,” Berroeta said.

“This will give us the scale to compete head-to-head across the whole telecoms market which will drive more competition, investment and innovation, delivering more choice and value for Australian consumers and businesses.”

Berroeta said Vodafone and TPG expects the merger should be completed in mid-2020, subject to regulatory and shareholder approvals, and any further appeals by the ACCC. 

The ACCC rejected the merger in May 2019 due to fears of reduced competition and contestability in the mobile and fixed broadband markets. The decision came despite TPG’s decision in early 2019 to scrap its plans to roll out its own mobile network due to the government's ban on using Huawei equipment to build 5G networks.

The ACCC said TPG was likely to roll out its own mobile network and become an innovative and disruptive competitor in Australia’s concentrated mobile telecommunications market.

The regulator added that the telco already spent $1.26 billion on the spectrum needed to build a mobile network, has an extensive transmission network, as well as a large customer base, and well-established brands in TPG, iiNet and Internode.

The two telcos announced their plans to merge in August 2018, with TPG chief David Teoh as chairman and Vodafone boss Iñaki Berroeta as chief executive and managing director.

But the proposal was shut down by the ACCC in May 2019, which said that both TPG and Vodafone announced plans to expand into mobile and fixed broadband services, respectively, despite both companies scrapping those plans. The two telcos took the regulator to court that same month.