Australia’s telco market is bracing for a major shake-up after the Federal Court gave the green light to the proposed merger of TPG and Vodafone.
The court’s ruling clears the path for a new company large enough to compete with Telstra and Optus – prompting analysts to declare a win for consumers.
The new company will trade as TPG and be worth roughly $15 billion.
The Australian Competition and Consumer Commission (ACCC) attempted to block the TPG-Vodafone merger in May on the basis it lessened competition.
But independent telecommunications expert Paul Budde said the merger was good news for consumers as the long-term viability of TPG and Vodafone had looked “shaky” before the decision.
Vodafone Australia is technically insolvent and has always lost money.
And TPG recently had to scrap plans to build its own mobile network after partner Huawei was banned from supplying 5G equipment to Australian companies.
Mr Budde said the merger consequently increased competition, by giving TPG and Vodafone the firepower needed to take on Telstra and Optus – both of whom announced falling profits on Thursday.
The Australian Communications Consumer Action Network put forward a similar argument last year, and credit agency Moody’s said on Thursday: “The merged entity will be much better positioned to compete as a credible third player in the Australian telco market than TPG and Vodafone individually”.
“The reality is, Vodafone has never been able to really perform well in the market. It’s always been a distant third. And TPG went through some serious problems a few years ago,” Mr Budde told The New Daily.
“They’ve also been hit by low margins and had profits going down … and I think it started to dawn on them 18 months ago that their business model was, I wouldn’t say unsustainable, but it was shaky.”
No price wars
Although he described the merger as good news for consumers, Mr Budde said large price falls were unlikely, though, as the telcos considered a price war “unsustainable for everyone”.
He said TPG and Vodafone would instead introduce bundle packages combining mobile and broadband.
TPG specialises in fixed-line fibre broadband and owns iiNet and AAPT.
Vodafone Hutchison Australia is primarily a mobile network operator.
“There will be a bit of a discount if you bundle, but typically that isn’t more than 5 or 10 per cent,” Mr Budde said.
“So I don’t expect any serious price competition as a result of Vodafone and TPG combining.”
Because the proposed merger was first announced 18 months ago, Mr Budde said it was safe to assume the companies had already laid the groundwork for new products.
“They will have a number of things in motion which can now be executed rather quickly. So I assume that, within the next couple of months, we will see some positive reactions in relation to some interesting products or bundling,” he said.
Justice John Middleton said in a summary of his statement on Thursday that “the court has come to the view that the proposed merger would not have the effect, nor be likely to have the effect, of substantially lessening competition in the supply of retail mobile services in Australia”.
The decision rested on Justice Middleton’s belief that TPG was no longer in a position to build its own network.
“That moment has passed,” he said.
“To now leave TPG and Vodafone in their current state will not promote competition in the retail mobile market.”
ACCC chairman Rod Sims said the decision meant Australians had “lost a once-in-a-generation opportunity for stronger competition and cheaper mobile telecommunications services”.
Vodafone Hutchison Australia chief executive Inaki Berroeta said the companies expected to complete the merger in winter, provided the ACCC did not lodge an appeal.
Because TPG owns submarine cables in US territory, the merger must seek approval from US regulators and the Foreign Investment Review Board before it can come into effect.
The ACCC has 28 days to appeal against the court’s decision, which comes after Australia’s two biggest telcos reported falling profits on Thursday.
Telstra said devastating bushfires and the NBN rollout had torched half-year profits by 7.6 per cent.
And Optus reported a 18.5 per cent fall in third-quarter profits, thanks to “increasing consumer demand for SIM-only plans”.