Vodafone Australia and TPG told to wait three months for merger decision

The final arguments have been presented to the Australian courts and now Vodafone Australia and TPG will have to wait until early 2020 for the decision on whether the $15 billion merger will be allowed.

This is a saga which has the potential to cause some long-term friction between the regulator and industry. Wherever you are around the world, best-case scenario would be collaboration between all elements of the ecosystem, but it does appear this is far from the case.

In a court case which has been on-going for just over three weeks, Justice John Middleton will now take into consideration all the arguments which have been presented. Unfortunately for those who are seeking a swift conclusion to the litigious chapter will be disappointed. Justice Middleton has said to expect a decision in January 2020, or potentially February.

Australian Competition and Consumer Commission (ACCC) took the decision to block the merger between Vodafone Australia and TPG on the grounds it would negatively impact competition in the future. The telcos are arguing this decision should be over-turned, suggesting it is the only way to ensure competition in a world which is quickly being defined by convergent operations.

This is a decision which will certainly disappoint someone. As patiently as Justice Middleton could look, there is no middle-ground between the feuding parties. The regulator is effectively accusing TPG of lying and the Vodafone/TPG representatives are suggesting the watchdog is not living in the realms of reality.

Looking at the perspective of the ACCC, the regulator believes the merger would prevent a fourth mobile player from emerging in the country. This is of course presuming TPG still has the appetite to deploy a network, and considering the telco has said it does not, the regulator is making a bold assertion.

Another interesting statement made by Michael Hodge QC, the lawyer representing the watchdog, is that its persistence to block the merger is based on “regulatory paternalism”. This is effectively a more acceptable way of saying ‘we know what better for you than you do’.

On the other side of the aisle, Vodafone and TPG are questioning whether the ACCC is looking at the same conundrum.

TPG did have an interest in diversifying revenues to enter into the mobile space, it was potentially going to do a ‘Jio Job’ to cause chaos, but the Huawei ban effectively put an end to this. Huawei was being touted as TPG’s main supplier of network infrastructure equipment, though the Australian ban for the vendor made financially unviable to pursue the network deployment, according to the telcos.

“Indeed, on the Commission’s evidence, TPG dodged a bullet that the network that they were rolling out would have been one of the great white elephants of Australian telecommunications history,” said Peter Brereton QC, representing Vodafone Australia at the trial.

If you believe the telcos, TPG is no-longer interested in building its own mobile network. It is not a financially attractive. Should the ACCC’s blockage of the merger stand, Australia will continue with three mobile network owners, though Vodafone will be in a weakened position to compete with the likes of Telstra and Optus.

This is the question which Justice Middleton needs to ponder. What is the best course of action for enhanced competition in the future? Three strengthened, converged telcos, or a fingers-crossed situation that TPG will be able to source CAPEX to fuel its own network deployment.

There are of course good and bad arguments on both sides of the aisle. The ACCC is potentially right to push for a disruptive fourth mobile provider, though is it reading the environment correctly? The telcos are of course correct to pursue a more comprehensive converged player, three top-tier telcos is certainly favourable than a duopoly, but there might be some nuanced language over the TPG appetite for network deployment moving forward.

The risk which could emerge is potential animosity. The UK’s connectivity landscape suffered due to friction between BT and regulator Ofcom, and there is potential for the same outcome here. Vodafone Australia and TPG only have one thing on their mind right now; a tie-up to challenge Optus and Telstra. The ACCC has taken somewhat of a patronising and stubborn stance, and seemingly does not want to consider the opportunity for increased competition with three converged operations.

Neither party is willing to budge, and it seems the loser will have to swallow a lot of pride to ensure a smooth relationship in the future.