thursday, 13 february of 2020


Australian court overturns regulator’s block on telecoms merger

Australia’s Federal Court on Thursday approved a A$15bn (US$10.1bn) merger between Vodafone’s local joint venture and fixed-line rival TPG Telecom in a ruling that overturns a decision by competition regulators to block the deal. 

The ruling marks a victory for both operators, which have struggled to compete in Australia’s concentrated mobile market, where larger rivals Telstra and Optus hold more than 80 per cent of the market. It should also help UK-based Vodafone’s long-term strategy to unwind its global empire by merging or selling off local networks and investing in cable assets in Europe. 

Iñaki Berroeta, chief executive of Vodafone Hutchison Australia, said the ruling would prompt more investment in next-generation mobile networks, including 5G. “This will give us the scale to compete head-to-head across the whole telecoms market which will drive more competition, investment and innovation,” he said. 

Vodafone’s business in Australia is a joint venture with Hong Kong’s CK Hutchison, part of billionaire Li Ka-shing’s business empire. It has 6m mobile customers. 

Ian Martin, analyst at New Street Research, who was an expert witness for TPG in the court case, said the ruling would shake-up Australia’s telecoms market over the next few years as the merged company built out its 5G network. “Vodafone has been constrained by lack of capacity and has lost market share to Optus and Telstra,” he said. 

The Australian Competition and Consumer Commission had opposed the merger, first announced 18 months ago, arguing it would hurt competition in the mobile market. It based its opinion TPG’s investment in mobile spectrum and plans to become the nation’s fourth mobile operator.

However, in January 2019 TPG halted the rollout of its mobile network, blaming a decision by Canberra to ban operators from deploying Huawei equipment over security concerns. At the time analysts said it made no sense for TPG to build its own mobile network if the merger with Vodafone went ahead. 

The regulator in May last year blocked the merger and argued to the Federal Court that a standalone TPG would still end up building its own mobile network, boosting competition in the market. 

But Justice John Middleton said in his judgment on Thursday that the merger would not substantially reduce competition and there was no legal reason to block the deal. 

The regulator has 28 days to lodge an appeal and said it was considering the ruling. “Australian consumers have lost a once-in-a-generation opportunity for stronger competition and cheaper mobile telecommunications services with this merger now allowed to proceed,” said Rod Sims, chairman of the competition watchdog. 

Shares in TPG surged 20 per cent in Australian trading on Thursday following the federal court’s announcement. 

Meanwhile, shares in telecoms monopoly Telstra fell almost 2 per cent after it reported a 6 per cent decline in net profit after tax for the six months to December. 

(Published by Financial Times, February 13, 2020)

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