Some items on our site have recently moved. Visit our News Hub for selected articles, special reports, podcasts and other resources.
Vodafone Hutchison's TPG Telecom acquisition blocked as regulator slams 5G rollout decision
08 May 2019 12:47 by Laurel Henning
Vodafone Hutchison Australia’s merger with local telecommunications operator TPG Telecom has been blocked, with the country's competition regulator revealing it hasn't accepted TPG's 11th-hour decision to pull the plug on its planned network rollout.
Announcing its decision today, the Australian Competition & Consumer Commission said that TPG had already committed itself to building the infrastructure, and that a failure to do so went against the company's commercial imperatives.
TPG's decision to end its network development program 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 rollout.
“TPG is the best prospect Australia has for a new mobile network operator to enter the market, and this is likely the last chance we have for stronger competition in the supply of mobile services,” ACCC Chairman Rod Sims said.
Today's announcement was made in dramatic circumstances, with a computer glitch leading to the publication of the decision this afternoon, a day earlier than scheduled.
Publicly listed TPG's stock price plummeted almost 16 percent following the ACCC's erroneous publication of its decision, from A$7.18 per share ($5.03) to A$6.04 ($4.23).
As a result of the error, the ACCC published a full explanation of its decision only an hour after its opposition to the A$15 billion ($10 billion) deal mistakenly became public. The merger had been billed as Australia's best chance to create a third industry force to rival dominant telecoms players Telstra and Singtel Optus.
When the regulator's official statement came out later in the day, ACCC Chairman Rod Sims said 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."
"This is particularly the case in concentrated sectors, such as mobile services in Australia," Sims said.
The ACCC's statement revealed that the regulator simply hadn't accepted TPG's announcement that it could no longer afford to be part of any future build-up of mobile telecommunications infrastructure.
“TPG has the capability and commercial incentive to resolve the technical and commercial challenges it is facing, as it already has in other markets," Sims said.
"TPG already has mobile spectrum, an extensive fiber transmission network which is essential for a mobile network, a large customer base and well-established telecommunications brands," he said.
Meanwhile, TPG has indicated its intention to launch legal action against the ACCC’s decision, saying that both companies remained “committed to the proposed merger.”
“[Our] legal action will involve seeking declaratory relief from the Federal Court, which has jurisdiction to decide if the merger should be permitted on the basis that it will not substantially lessen competition,” TPG said in a statement to the Australian Securities Exchange.
Vodafone Hutchison Australia Chief Executive Officer Iñaki Berroeta said in a statement that although the company respected the ACCC’s review process, he remained convinced that the deal could bring “very real benefits to consumers.” That, Berroeta said, made court action the company’s only option.
Today's decision had been pushed back from March 28, after the ACCC said in January that there had been a delay in receiving the information it needed from the companies to make a decision on the deal.
The ACCC said in December that it was concerned that a merged TPG-Vodafone Hutchison would harm competition in both the mobile phone and the fixed broadband markets.
The regulator appears not to have overcome those fears, with today's decision revealing that the merger between TPG and Vodafone would "reduce competition and contestability in this sector."
The ACCC was also scathing in its criticism of the merging companies, saying that they had dragged their feet in responding to its requests for documents and information required to assess the deal's impact on the market.
"During the course of the review, the ACCC ... made a number of document and information requests to the merger parties," the ACCC said. "Collectively, the parties took 76 business days to respond to these other requests."
In the ACCC's review of the deal, Sims had said that a mobile market with three major players rather than four would probably lead to higher prices and less innovative plans for mobile customers. But TPG argued that Australia needed a third major industry force to rival Telstra and Singtel Optus, the country's two main players.
Sims has said that although Vodafone Hutchison was currently a relatively minor player in the market, the ACCC believed “it may become an increasingly effective competitor because of its high level of brand recognition and existing retail mobile customer base.”
In making its decision, the ACCC also considered the longer-term impact of the proposed deal, in light of a likely increase in the take-up of mobile broadband services in place of fixed home broadband services in the future — particularly after the rollout of 5G technology.
Under the deal announced in August, the merger would have created Australia’s third-largest telecoms company, combining Vodafone’s mobile phone network with TPG’s five assets. The deal would have left TPG shareholders with 49.9 percent of the new entity and Vodafone shareholders with 51.1 percent.
Currently, retail mobile services in Australia are dominated by Telstra, which has 44 percent of the market, followed by Singtel Optus, with 29 percent. Vodafone is in third place, with 19 percent, and TPG has 3 percent.
Vodafone Hutchison owns and operates 3G and 5G mobile networks, with a customer base in Australia of around 5.8 million subscribers. In 2017, it commenced supply of fixed broadband services through its National Broadband Network offering to customers in Sydney, Canberra, Melbourne, Perth, Brisbane, Geelong, Newcastle and Wollongong.
In December, TPG announced that it had acquired 5G spectrum nationally through its joint venture with Vodafone Hutchison. The joint venture, called Mobile JV, was a successful bidder in a 3.6GHz band auction, and will pay $A263.3 million in early 2020 for the lots it purchased.
But in January, TPG said it was halting work on 5G network development after Canberra’s decision denying Chinese telecommunications equipment companies Huawei and ZTE any role in Australia’s 5G rollout — a ban replicated by New Zealand. In both countries, the ban was based on security concerns amid fears that Beijing could use the companies' infrastructure for espionage.
Vodafone has found vulnerabilities going back years in equipment supplied by Huawei to its Italian business, according to a Bloomberg report dated April 30. Huawei has dismissed that report.
Publicly-listed TPG told the markets it was pulling out of the 5G build-out because the loss of Huawei as a supplier had raised the price tag of any network rollout.
Days earlier, UK-based Vodafone, one of Vodafone Hutchison Australia's owners, announced its decision to suspend the use of Huawei’s equipment to deploy 5G mobile networks while it discussed security concerns with regulatory agencies, governments and the Chinese tech company.
The US has banned the purchase of Huawei's products by the federal government and its legion of contractors.
The EU has called for all national governments to carry out cybersecurity risk assessments.
Late last month, the UK announced it would examine Huawei as part of a broader inquiry into security concerns relating to China.
26 April 2023 17:59 by Flavia Fortes, Nicholas HirstMicrosoft is set to appeal a UK block on its proposed acquisition of game developer Activision Blizzard
26 April 2023 15:20 by Andrew Boyce, Nicholas HirstMicrosoft is set to appeal a UK block on its proposed acquisition of game developer Activision Blizzard. But reversing a decision by the Competition and Markets Authority is fiendishly hard; in fact, it's never been done in a merger case — at least not in recent memory
20 March 2023 11:44 by Fiona MaxwellCredit Suisse shareholders have been spared the pain in comparison to bondholders in the bank's rush weekend takeover by UBS.