Vodafone Proceed Against ACCC: Vodafone Suffers Further Without TPG Merger

Vodafone Proceed Against ACCC: Vodafone Suffers Further Without TPG Merger

Vodafone Proceed Against ACCC

Vodafone Suffers Further Without TPG Merger

Vodafone Hutchison Australia (VHA) has warned Australians that its 5G network will suffer without the merge with TPG after the Australian Competition and Consumer Commission (ACCC) opposed the proposed $15 billion merger between the two telecommunication companies. In response, in early May, VHA and TPG decided to launch legal action in the Federal Court and extended the End Date of the merge to 31 August 2020.

VHA Chief Executive Officer Iñaki Berroeta believed the merger with TPG will “bring very real benefits to consumers” and therefore decided to, “together with TPG, pursue approval of the merger through the Federal Court.” The company mentioned the merge is about “combining two complementary businesses, which have very little overlap and can deliver more for Australian consumers together than they can alone.”

TPG Executive Chairman David Teoh said the outcome of the proposed merger will “greatly enhance competitive dynamics in the Australian telecommunications industry, as well as superior choice and outcomes for consumers.” The company did not believe that the proposed merger will lessen competition in the industry, as suggested by the ACCC.

The ACCC argued that the proposed merger between TPG and VHA will “reduce competition and contestability” in the telecommunication industry. Given the concentrated telecommunication market in Australia, the regulator concluded that the merger is likely to “substantially lessen competition in the supply of mobile services” because it would prevent TPG from entering the mobile network operator. The ACCC stated that market structures should be “settled by the competitive process, not by a merger”.

In Australia, Mobile Virtual Network Operators (MVNO), who use the network of the three major carriers to offer consumers more options, appeared to support the ACCC’s decision. Boost Mobile founder Peter Adderton uses Telstra’s network to provide prepaid plans. He believed the regulator’s aim to bolster competition in the industry will benefit MVNO.

Telecommunication industry in Australia

Currently, Australia has three major network operators, Telstra, Optus and Vodafone in the mobile services market. These companies captured over 87% of the market share. However, among these three businesses, Vodafone has the smallest market share with just over 15% and Telstra controlling 43%. Therefore, compared to its competitors, Vodafone has limited spectrum holdings and financial resources, which will have a direct effect on its network speed.

On the other hand, the fixed broadband giants, Telstra, TPG and Optus together have around 85% of the market share. Telstra again dominates the market by holding more than 52% share. TPG controls almost 23% of the market share. While TPG holds little shares compared to Telstra, the company is growing rapidly. After the successful bid for mobile spectrum in 2017, TPG has all the essential ingredients to roll-out its own mobile network.

Vodafone’s 5G network

Vodafone started to implement the 5G network several years ago and expected the widespread availability of 5G devices by 2020. In 2015, the company started rolling out 4,000 kilometres of fibre to more than 3,000 sites across the country in order to increase capacity and lower latency. In 2017, VHA brought its network to the cloud, allowing the business to be more agile to respond to new technologies and implement services more rapidly. However, the 5G network will be useless without enough spectrum.

Since the Huawei ban in Australia, Vodafone resorted to a merging strategy with TPG in hopes to improve its growing congestion on the mobile network. The merger would give Vodafone access to TPG’s radio spectrum and provide improved access to financial resources, which is crucial in its ability to challenge Optus and Telstra.

Huawei banned in Australia

The companies in the Australian telecommunications industry have mostly relied on Huawei’s equipment to build its network. Compared to other manufacturers, Huawei equipment was on average more than 25% cheaper than Nokia and Ericsson. However, the federal government banned the Chinese telecommunication giant from providing equipment to Australia’s new 5G mobile phone networks due to national security concerns.

The ban in August 2018 had already taken a toll on the telecommunication industry. Many businesses were forced to break their promises. Before the ban, Vodafone had planned to use Huawei equipment to build its entire 5G network. Without Huawei, the material costs would be higher and the upgrade of its network would be delayed. TPG had already invested $228 million into building its 4G mobile network before the company was forced to abandon its plans as it was built almost exclusively with Huawei equipment.

Vodafone and TPG’s gamble with ACCC

Industry experts believed that the merge between VHA and TPG is not off the table yet. The merge would definitely create increased competition for Optus and Telstra in the mobile services market. Both companies are determined to challenge the ACCC’s decision. A court hearing is not expected until later this year and the outcome of the proceeding may change the market structure in the telecommunication industry.

By Jack Lee

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