The ACCC Merger Rejection Is Good News For Telstra

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The ACCC has decided to block the proposed merger between TPG Telecom Limited and Vodafone Hutchison Australia. Whene large companies in markets where ownership is concentrated want to merge, the ACCC looks into whether there's public benefit in either approving or refusing the deal. The ACCC has deemed that the proposed deal has the potential to stifle competition in the long term. Will this make a difference to consumers?

In its decision, the ACCC points out that the local mobile network market is concentrated with Optus and Vodafone holding almost nine of every ten customers. The rest is with MVNOs.

Fixed broadband is similarly concentrated with Telstra, TPG and Optus having approximately 85% share.

So, if TPG and Vodafone merged, they would have a massive footprint across all data services. Which would make them a lot like Optus and Telstra.

Perhaps the most interesting comment in the ACCC decision is its view about TPG.

ACCC Chairman Rob Sims said "TPG already has mobile spectrum, an extensive fibre transmission network which is essential for a mobile network, a large customer base and well-established telecommunications brands. TPG is also facing reducing margins in fixed home broadband due to the NBN rollout. Further, there is the growing take-up of mobile broadband services in place of fixed home broadband services which is expected to increase especially after the rollout of 5G technology. After thorough examination, we have concluded that, if this proposed merger does not proceed, there is a real chance TPG will roll out a mobile network".

In other words, the commission believes that by blocking the merger, it increases the chances that TPG will build a fourth mobile network in competition with Telstra, Optus and Vodafone.

TPG has signalled that they do plan to build its own mobile network. Would this merger have put that plan on hold? Given it had already invested over a billion dollars I doubt it. More likely, the merged business would be better able to compete with Telstra and Optus.

Australia's current population is about 25 million people. It will double, according to the ABS by 2066. Maybe, in the intervening years, there will be enough people to sustain a fourth carrier but trends across other industries, such as airlines and supermarkets, suggest the population is only big enough to support two or three major players with some niche players on the fringes - which is exactly what we have in mobile and fixed broadband now.

Would a fourth physical mobile network be valuable? I'm not convinced that the current model with three separate physical networks is the best model for Australia. But the ship has sailed on having a single network that covers everyone equally, and not just the customers that generate the most revenue, that is resold by retailers.

The rejection of the merger means things will continue as they are; three major carriers in mobile and three major RSPs on the NBN with lots of smaller players. And real competition that could shake Telstra from its position of dominance in both fixed broadband and mobile will take decades to develop, instead of being given a kickstart.


Comments

    none of this article makes any sense.

    TPG has signalled that they do plan to build its own mobile network. Would this merger have put that plan on hold? Given it had already invested over a billion dollars I doubt it.

    Been following the news at all? They invested in Huawei for their network build, once they were ruled out as an acceptable provider they canned their roll-out in favor of a merger with Voda. I'm sure you guys would've reported on this at the time.

    The rejection of the merger means things will continue as they are; three major carriers in mobile and three major RSPs on the NBN with lots of smaller players. And real competition that could shake Telstra from its position of dominance in both fixed broadband and mobile will take decades to develop, instead of being given a kickstart.

    How does the merger kickstart competition? It wouldn't. Those TPG plans for $10 unlimited data we heard about were old news as soon as talk of the merger appeared. The merger would've meant one more big player charging telstra and optus level prices. It would have left things pretty much status quo, the way we have telstra, optus and Voda competing already. Any dream of a kick start to that competition is a fantasy. Better off moving towards a 4 player game where we know there will be more competition in the short and long term.

    Was the merger a good thing for Telstra? Think I'd believe the share market over this opinion piece. Was very clear yesterday that this news was actually bad for Telstra.

    Last edited 09/05/19 10:19 am

      Actually, the sharemarket smashed both TPG and Vodafone. And most commentators agree that this decision is actually a bad outcome for competition. A merged Voda/TPG might have been able to make inroads against Telstra. The ACCC has badly misread the situation, in my view, with regards to this decision.

        it is hard to tell, it does all depend on TPG's next move.

        If TPG do end up building a network (even a partial, metro area only one) this could end up being a good decision for consumers and the market as a whole.

        But if they just sell off their spectrum and we go back to the 2.5 big boys, then it'll turn out to be a bad call.

        Problem is they don't even have a network yet and already wasted money on the huawei debacle so ACCC presuming that no merger equals a TPG network is the big problem here.

        Personally I think winning on appeal is actually the most likely outcome.

        edit: oh and of course the market smashed TPG and Voda too. A merger is what they wanted would've been good for them, Optus and Telstra. That's why the news hurt all 3 stock prices.

        Last edited 09/05/19 4:33 pm

    Apparently the ACCC released this information at the wrong time and didn’t tell the ASX. Causing prices to fall.

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