Vodafone and TPG $15bn merger given green light by federal court

A $15bn merger between Vodafone Australia and TPG has been cleared to go ahead, after a decision in the federal court.

Australia’s consumer watchdog opposed a merger between the telecommunications companies in May last year because it would discourage competition in the mobile market.

But federal court justice John Middleton said on Thursday the multibillion dollar merger would not “substantially lessen competition” in the market.

TPG had previously made moves to build its own 4G mobile network before the proposed merger, including buying $1.26bn in radio spectrum required.

Those plans came to an end in January last year when founder David Teoh said increased costs, and the government’s decision to ban Chinese tech company Huawei from supplying to Australian companies building 5G networks, made it unviable.

The Australian Competition and Consumer Commission attempted to block the merger on the grounds that TPG could overcome these challenges to build the network and increase competition in the mobile market.

The federal court found, however, that it was “extremely unlikely and there is no real chance that TPG will roll out a retail mobile network or become an effective competitive fourth mobile network operator in Australia in the relevant future”.

Middleton said Vodafone was also facing its own challenges competing against Telstra and Optus, both of which have both fixed and mobile network services, so the “rational and business-like solution” is for Vodafone and TPG to merge.

The very fact that TPG disclosed in sworn evidence that there was no business case for a mobile network on its own would make it difficult for TPG to then, as a publicly listed company, proceed with a network rollout.

No conditions have been set on the merger in the judgment.

ACCC chair Rod Sims expressed disappointment in the court’s decision, saying Australian customers have “lost a once-in-a-generation opportunity for stronger competition and cheaper mobile telecommunications services”.

“The ACCC’s concern was that with this merger, mobile data prices will be higher than they would be otherwise. These concerns were reinforced by statements from the industry welcoming the merger and the consequent ‘rational’ pricing,” he said.

Fixed line rival Macquarie Telecom has also argued the merger will mean people will be “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,” CEO David 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).

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

At the time the merger was under review by the ACCC, the Australian Communications Consumer Action Network argued for the merger, stating the high cost of entry into the mobile market meant it was unlikely there would be any new entrants.

“Without a strong, and sustainable third mobile network operator, Telstra and Optus will have the opportunity and incentive to compete less vigorously for customers,” ACCAN said in its October 2018 submission to the ACCC.

“Australian consumers experienced this when Vodafone was weakened following its substantial network issues and subsequent customer losses.”

The new merged entity will be one of the biggest telecommunications companies in Australia, ahead of Optus in fixed line customers, with TPG owning other large ISPs including iiNet, Internode, AAPT, TransACT and Pipe.