Huawei role in TPG’s planned 5G network to take center stage in Vodafone merger lawsuit

4 June 2019 10:14am

31 May 2019. By James Panichi and Laurel Henning.

TPG Telecom’s decision to scrap its planned rollout of a 5G mobile phone network as a result of a ban on Chinese telecommunications company Huawei will play a central role in an Australian court action, with lawyers for the country’s competition regulator today questioning the company’s motives.

During a preliminary hearing at the Federal Court of Australia in Melbourne, lawyer Michael Hodge, representing the Australian Competition & Consumer Commission, said TPG’s claim that a government ban on Huawei technology had affected the 5G rollout was a “threshold issue."

Hodge told the court that if evidence presented as part of the lawsuit were to undermine TPG’s claim that the Huawei ban had affected its ability to continue the rollout, that would suggest that the ACCC had been correct to oppose its planned merger with Vodafone Hutchison Australia.

“There’s likely to be a factual inquiry about how TPG reached that conclusion,” Hodge told Judge John Middleton. “I’m highlighting this because, ultimately, it will have a bearing [on the trial].”

The merger between Vodafone Hutchison Australia, which is jointly owned by the UK's Vodafone Group and Hong Kong-based CK Hutchison, and TPG had been set to create a third industry force to rival incumbent heavyweights Telstra and Singtel Optus.

But earlier this month the ACCC blocked the A$15 billion ($10 billion) deal, saying that further consolidation in the industry would have a long-term impact on competition in both the mobile phone and the fixed-broadband markets.

In August 2018, the Australian government announced a ban on the use of Huawei and ZTE technology in the rollout of the country's 5G mobile network, citing espionage concerns. In January 2019, TPG announced that it wouldn't be able to continue with its planned mobile network rollout, citing the additional costs arising from the Huawei ban.

In the course of today’s hearing, the ACCC clashed with both Vodafone and TPG about the timing of what is expected to be a three-week hearing in a lawsuit brought by the companies planning to merge in an attempt to overturn the ACCC’s decision to oppose the deal.

The ACCC asked Judge Middleton for a late start to the lawsuit — either late October or November — to give it time to prepare its case. But the legal teams for both Vodafone and TPG said that any delay would harm TPG's financial prospects, and they suggested an August starting date for the lawsuit.

TPG’s lawyer, Ruth Higgins, told the court that the company held “finite spectrum licenses” valued at more than A$1.3 billion that were losing value as a result of the delays. Higgins argued that any delay was also harming the publicly listed company’s prospects as a result of the regulatory uncertainty.

Vodafone told the court that there was no reason why the ACCC shouldn't be ready to fight its case today, given that the regulator had already interviewed senior managers at both Vodafone and TPG as part of its review of the planned merger.

The court ruled in a second hearing today that the appeal case would begin on Sept. 10.

“The ACCC enjoys a number of significant advantages,” said lawyer Robert Yezerski, representing Vodafone, adding that the regulator had all of the submissions it needed and knew all of the experts that it would have to bring in to argue its case.

But the ACCC said that the lawsuit would have to assess whether the planned merger would, as the regulator had claimed, lead to a substantial reduction of competition in a given market. Yet the court hearings were not a probe of the ACCC’s decision-making processes.

However, lawyers for the regulator conceded that it would be limiting its defense to the retail mobile market issue that had been central to the ACCC’s decision to oppose the merger.

That prompted Yazerski, acting for Vodafone, to say that there may not be an issue of market definition in the course of the hearings. Hodge responded by saying that the ACCC didn’t expect market definition to be disputed.

During today’s preliminary hearing, Judge Middleton also ruled that the lawsuit would be held in Melbourne, even though most of the witnesses that will be put forward by Vodafone and TPG will be in Sydney. Middleton said those witnesses would be dealt with via video link.

If successful, the companies’ legal move to overturn the regulator’s bid to stop their planned merger could harm the ACCC’s credibility in enforcing its approach to regulating deals in rapidly evolving technology markets.

The regulator said at the time that the merger would have set up a "market structure that would be subject to little challenge in the future" and that it "would preclude TPG entering as the fourth mobile network operator in Australia."

The ACCC didn’t accept TPG’s 11th-hour decision to pull the plug on its network rollout, which the company said was linked to the Australian government’s decision to ban Chinese telecoms equipment giant Huawei from any role in the nation's upcoming 5G infrastructure setup.

Judge Middleton also announced that he planned to appoint Darryn Abraham, a member of the Australian Competition Tribunal, as an assessor — an economic and competition expert who would sit alongside the judge and help shed light on any technical issues requiring clarification.

However, Middleton said that Abraham wouldn’t have a role in the court’s final ruling.

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