Aussie watchdog sniffs around TPG and Vodafone merger

The Australian Competition and Consumer Commission (ACCC) is having a closer look at the AUS$15 billion TPG and Vodafone merger, with the signs looking rather ominous for the pair.

After initially being rumoured in August, the merger was confirmed with the pair targeting convergence trends to source fortunes down-under. Neither telcos has been tearing up trees in the market, TPG’s recent financials revealed 0.5% growth over 2018 while Vodafone posted a first-half net loss of AUS$92.3 million in July, though this merger could have been viewed as a means to become more profitable.

However, the ACCC is citing competition concerns in both the mobile and the broadband business units. When the watchdog starts to get twitchy, it doesn’t necessarily bode well.

“Our preliminary view is that TPG is currently on track to become the fourth mobile network operator in Australia, and as such it’s likely to be an aggressive competitor,” ACCC Chair Rod Sims said.

“Although Vodafone is currently a relatively minor player in fixed broadband, we consider it may become an increasingly effective competitor because of its high level of brand recognition and existing retail mobile customer base.”

As separate companies, TPG has the broadband heritage with ambitions in the mobile game, while for Vodafone it is the opposite. Any regulator or competition authority which is starting to see organic diversification will start to get excited, though this merger will effectively kill off any promise of additional players in the individual connectivity segments, as they would lean on the new partners strength. The promise of four separate mobile and broadband telcos is disappearing in front of the ACCC’s eyes.

The question which remains is whether Australia needs a fourth player in the mobile and broadband segments for the market to remain competitive? There are of course pros and cons to both sides of the argument, though risk-adverse public sectors bodies tend to believe more providers means a better outcome for the consumer due to competition.

This is certainly what appears to be happening in Australia, though this is a country which needs to operate its own rules.

In markets like the UK, fewer providers might not mean less competition. The land mass which needs to be covered is comparatively small, therefore it is not out of the question to have genuine national providers, which can offer 90% or greater coverage. This means choice for the consumer and the providers have to scrap for attention and subscriptions.

However, Australia is massive, incredibly varied and contains some very hostile environments; not exactly the perfect playing field for telco expansion and greenfield investment. The risk of localised monopolies emerging are greater, due to the final burden of increasing coverage or entering into new segments. With this in mind you can see why the ACCC is getting a bit twitchy.

Of course, consolidation means a bigger subscriber base, greater revenues and therefore increased CAPEX budgets. Investors and management teams have more confidence in being able to upsell services to existing customers, therefore the risk in investing in new infrastructure or upgrades is decreased.

It is six of one and half a dozen of the other when you look at it, though that will come as little comfort to the TPG and Vodafone executives now facing the scrutiny of the ACCC.