Block on TPG-VHA merger overturned

TPG Telecom and Vodafone Hutchison Australia (VHA) have prevailed in their legal battle to have the ACCC’s decision to block their merger overturned.

In Melbourne’s Federal Court today, Justice John Middleton ruled that the merger between TPG and VHA is unlikely to substantially lessen competition.

While the ACCC had argued that absent the merger, there is a real chance that TPG would revive its abandoned plans to enter the mobile market, becoming Australia’s fourth mobile network operator, the judge found that TPG’s window for entering the mobile market has passed.

TPG was adamant that it had no plans to enter the mobile market if it is not allowed to merge with VHA, and Middleton noted that the ACCC had not attempted to directly discredit any witnesses who had argued this.

But in a statement, ACCC Chair Rod Sims stuck to his guns. “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,” he said.

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

He defended the regulator’s decision to challenge the merger despite the loss, noting that it is successful in more than 80% of the consumer and competition law cases it pursues in court.

“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,” he said.

“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.”

VHA CEO Iñaki Berroeta said the verdict is a “great outcome” for the company, the Australian mobile market and the broader economy.

“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,” he 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 said both the ACCC’s decision to block the merger and the government’s decision to block Huawei — Vodafone Australia’s main equipment supplier — from providing equipment for Australia’s 5G rollouts had both been giving “free kicks” to rivals Telstra and Optus.

But the merger will pave the way for VHA to accelerate the delivery of 5G technology to customers, compensating for the head start rivals have been granted.

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

TPG CEO David Teoh also welcomed the verdict. “TPG is very pleased with the Federal Court decision and looks forward to combining with VHA to create Australia’s newest fully integrated telecommunications operator,” he said.

“We will work to finalise the other conditions to the merger as soon as possible.”

But Macquarie Telecom has disputed the assertion that the merger will be good for the competitive landscape of the mobile maret. CEO David Tudehope said the decision “will only worsen the lack of competition, which has meant our industry continues to underserve and overcharge customers”.

He added that now that the merger has been allowed to proceed, the government and ACCC will need to reconsider how to improve retail and wholesale competition in the mobile sector.

“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,” he said.

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

The deal still requires the approval of shareholders, as well as the Australian Foreign Investment Review Board (FIRB) and the Committee for Foreign Investment in the United States (CFIUS), and the ACCC has 28 days to file an appeal against the verdict. The ACCC has announced it is “carefully considering the judgment” but did not say whether it plans to appeal.

Subject to these approvals and in the absence of an appeal, VHA and TPG now expect to complete the merger in mid-2020.

Image credit: ©stock.adobe.com/au/Dmitry Guzhanin