The TPG Telecom Ltd (ASX: TPM) share price came crashing down on Wednesday after the ACCC “inadvertently” released its final verdict early on the TPG and Vodafone Australia merger.
ASX: HTA), in a potential $15 billion deal, with legal proceedings related to the merger ongoing. "}" data-sheets-userformat="{"2":4606,"4":[null,2,16776960],"5":{"1":[{"1":2,"2":0,"5":[null,2,0]},{"1":0,"2":0,"3":3},{"1":1,"2":0,"4":1}]},"6":{"1":[{"1":2,"2":0,"5":[null,2,0]},{"1":0,"2":0,"3":3},{"1":1,"2":0,"4":1}]},"7":{"1":[{"1":2,"2":0,"5":[null,2,0]},{"1":0,"2":0,"3":3},{"1":1,"2":0,"4":1}]},"8":{"1":[{"1":2,"2":0,"5":[null,2,0]},{"1":0,"2":0,"3":3},{"1":1,"2":0,"4":1}]},"9":1,"10":1,"11":4,"15":"Raleway"}" data-sheets-formula="=vlookup(R7C2,R10C4:R262C18,8,false)">TPG Telecom is one of Australia’s largest broadband and mobile phone providers, with around 2 million broadband subscribers. It also has an emerging mobiles business.
ASX: HTA), in a potential $15 billion deal, with legal proceedings related to the merger ongoing. "}" data-sheets-userformat="{"2":4606,"4":[null,2,16776960],"5":{"1":[{"1":2,"2":0,"5":[null,2,0]},{"1":0,"2":0,"3":3},{"1":1,"2":0,"4":1}]},"6":{"1":[{"1":2,"2":0,"5":[null,2,0]},{"1":0,"2":0,"3":3},{"1":1,"2":0,"4":1}]},"7":{"1":[{"1":2,"2":0,"5":[null,2,0]},{"1":0,"2":0,"3":3},{"1":1,"2":0,"4":1}]},"8":{"1":[{"1":2,"2":0,"5":[null,2,0]},{"1":0,"2":0,"3":3},{"1":1,"2":0,"4":1}]},"9":1,"10":1,"11":4,"15":"Raleway"}" data-sheets-formula="=vlookup(R7C2,R10C4:R262C18,8,false)">In 2018, TPG planned to merge with the owner of Vodafone Australia, known as Hutchison Telecommunications (ASX: HTA), in a potential $15 billion deal. Legal proceedings related to the merger are ongoing.
The ACCC’s “Inadvertant” Verdict
A few months ago, the ACCC’s Chair Rod Sims said:
“Our preliminary view is the merged TPG-Vodafone would not have the same incentive to operate in the same way, and competition in the market would be reduced as a result.
A mobile market with three major players rather than four is likely to lead to higher prices and less innovative plans for mobile customers.”
With Telstra Corporation Ltd (ASX: TLS), SingTel’s Optus and TPG/Vodafone being the only mobile network providers, the ACCC must have been confident that four providers is much better for consumers than three.
TPG… Without Mobile?
Around the time of the draft ACCC decision, TPG took the opportunity to call off its 5G mobile network rollout, sending the Telstra share price higher.
As Rask Media’s Jaz Harrison said here, “TPG Cancels Mobile Rollout”, the decision to cut its 5G network plans coincided with the Australian Government’s ban on technology provided by China’s Huawei.
At the time, TPG’s decision to stop its mobile network rollout appeared to be a reaction to the ACCC draft decision. However, the reality is the Government’s security concerns about Huawei technology was a driving factor. Meaning, it’s now probably cheaper and easier to merge with Hutchison than continue to build its own network.
Capital Up In Smoke
For TPG shareholders the financial implications of a stalled rollout are clear. As Harrison wrote, “TPG has already invested $100 million for its now-cancelled mobile network and has already committed another $30 million.”
To be candid, $130 million is a lot of money but it’s a drop in the bucket for an Australian mobile network build.
Yet for longer-term growth, 5G mobile is likely to be table stakes for Australian telecommunications companies since there’s a growing fear that mobile technology will ‘leapfrog’ services provided by the NBN. In many areas, 5G mobile will have faster speeds and offer more convenience to consumers.
Waiting On The Federal Court
While the ACCC’s decision to deny the merger is undoubtedly a blow to TPG/Vodafone — and a favourable decision for Telstra and Optus — the matter is currently progressing through the Federal Court, which could yet bear fruit for shareholders.
As TPG Chairman David Teoh said, “While we respect the ACCC’s process, its decision has significant implications for Australian consumers, and in our view, must be challenged.”
“With the advent of 5G next generation mobile technology, Australian consumers more than ever need a strong challenger.”
And with a very strong broadband business and supportive and powerful shareholders like Washington H. Soul Pattinson & Co. Ltd (ASX: SOL), I doubt we’ve heard the end of TPG’s mobile plans…
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Disclosure: At the time of publishing, Owen does not have a financial interest in any of the companies mentioned in this article.
