Vodafone-TPG merger could be a win-win

A potential merger between Vodafone Hutchison Australia and TPG Telecom makes business sense and could be a win-win for both companies, but will not be without its challenges, according to telecoms analyst Paul Budde.

TPG and VHA confirmed on Wednesday that they have commenced preliminary discussions regarding a potential “merger of equals” between the telecoms companies.

If a deal eventuates, it could represent a change of plan for TPG Telecom, which had indicated in June that it is planning to enter the mobile market as Australia’s fourth mobile operator (the company currently resells Vodafone 4G services as a mobile virtual network operator).

Budde said that while TPG entering the mobile market would have injected healthy competition and benefited consumers, “in the end business sense has prevailed and Vodafone and TPG have decided to look at merging both companies”.

A merger between the companies “is indeed a very rational decision, but we will have to wait and see how this will be implemented in the market, this won’t be easy”, he said.

Both Vodafone and TPG have reasons to pursue a merger. Vodafone has been on the back foot in the mobile market since launching due to a decision not to start with the then-prevailing 1G mobile service, and its failure to prepare its networks for the influx of data during the smartphone era caused significant network problems, with the operator losing a third of its customers as a result.

“At the same time TPG faced the reality that building out a new mobile network after they acquired the spectrum for it is a very costly exercise and it was — for obvious reasons — very difficult for them to negotiate access with the other operators,” Budde said.

But while there is potential for synergy between the two companies, their branding and marketing is very different, which could pose challenges with integration.

“It will be very interesting to see how this will work out — will they maintain two different entities with two different brands? Time will tell,” Budde said.

“And obviously the ACCC will also have a say about this, so there will be interesting times ahead for both companies and indeed for the telecoms market as a whole.”

Image credit: ©iStockphoto.com/au/ayzek

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