TPG Telecom Limited’s [ASX:TPM] share price has taken a significant hit at the beginning of trading this morning, plummeting 14.60% to $6.61 per share. The fall in price comes on the back of concerns raised by the ACCC regarding the merger of Vodafone Australia and TPG Telecom into a single $15 billion telecommunications giant.
TPG is an Australian-based multimedia and telecommunications company providing consumer, wholesale and corporate telecommunications services. The business offers voice, internet and data solutions to a range of customers from consumers to SMEs, as well as corporate and government sectors.
Merger set to cost consumers
The ACCC, in a statement released this morning, has expressed concerns about the proposed merger between TPG and Hutchison Telecommunications (Australia) Limited [ASX:HTA], and its potential impact on Australia’s mobile and broadband markets.
Vodafone owns and operates its own mobile services in Australia and has begun supplying fixed line broadband services on the NBN. TPG is currently building its own $600 million mobile network in the country.
The ACCC is concerned the merger could cause the company to price aggressively in an effort to rival other suppliers.
‘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.
‘We therefore have preliminary concerns that removing TPG as a new independent competitor with its own network, in what is a concentrated market for mobile services, would be likely to result in a substantial lessening of competition. If TPG remains separate from Vodafone, it appears likely to need to continue to adopt an aggressive pricing strategy, offering cheap mobile plans with large data allowances.’
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Basic economics teaches us that in many markets where the number of providers are reduced, this will likely lead to higher prices and less innovation.
An Australian market with only three major players — as opposed to four — will likely see an increase in mobile plan and broadband prices.
Despite its relatively small market share, the ACCC announced it would also examine the impact of removing Vodafone as a competitor in the fixed broadband market.
‘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,’ Mr Sims said.
The ACCC is scheduled to make its final decision by 28 March next year after hearing responses to its preliminary concerns.
What’s next for the merger?
Vodafone Australia CEO Inaki Berroeta said the decision was not unexpected, with the business still confident the transaction would go ahead in the first half of 2019.
Contradicting the ACCC, Mr Berroeta said:
‘Customers will be the big winners of a proposed merger … Increased investment requires increased scale, and the proposed merger will enable the merged entity to take competition in the market to the next level.’
Chief operating officer for TPG, Craig Levy, also shared Mr Berrota’s sentiment, stating the ACCC’s concerns were not a surprise as the companies had expected the deal to be a lengthy process due to the complexity of bringing the companies together.
TPG and Vodafone have been working closely together in the months following the merger announcement, securing the licenses for a radio wave spectrum allowing the telcos to launch ultra-fast 5G networks.
In a statement released this morning, TPG said it remains confident that the necessary regulatory approvals and other conditions can be completed to enable completion of the merger in the first half of 2019.
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