TPG-Vodafone merger decision set for May

The Australian Competition and Consumer Commission (ACCC) has set a new date for its provisional decision on whether TPG and Vodafone Australia will be allowed to merge, with the verdict to be handed down on May 9.

The new date follows another delay from the ACCC at the end of February, when it backed out of making the decision on March 28.

The regulator had been due to hand down its draft decision in December, but said it needed more time and information, as it was unclear on whether it would substantially lessen competition in the telecommunications market.

The ACCC released a statement of issues at the time, outlining concerns it had over TPG not becoming Australia's fourth mobile carrier. It was also looking into the long-term mobile impact as 5G begins to be deployed.

"Our preliminary view is that TPG is currently on track to become the fourth mobile network operator in Australia, and as such it's likely to be an aggressive competitor," ACCC Chair Rod Sims said at the time.

"We therefore have preliminary concerns that removing TPG as a new independent competitor with its own network, in what is a concentrated market for mobile services, would be likely to result in a substantial lessening of competition.

"If TPG remains separate from Vodafone, it appears likely to need to continue to adopt an aggressive pricing strategy, offering cheap mobile plans with large data allowances. Our preliminary view is the merged TPG-Vodafone would not have the incentive to operate in the same way."

The ACCC said it would also look into whether removing Vodafone as a separate fixed broadband provider would impact competition.

The Statement of Issues [PDF] said the ACCC was concerned that there would be higher prices and more restrictive conditions for wholesale services in the mobile market, and higher prices and lower-quality services including lower data inclusions or poor performance across retail fixed broadband.

"The ACCC is also considering whether when 5G mobile technology becomes commercially available in the near future, TPG and VHA may, in the absence of the merger, compete in a market for retail broadband services using either mobile or fixed networks (retail home broadband services)," the ACCC added.

"In this case, the proposed merger may substantially lessen competition in that market."

Since then, however, TPG has been forced to halt its own mobile network rollout following the Australian government's ban on using Huawei equipment for 5G.

"It is extremely disappointing that the clear strategy the company had to become a mobile network operator at the forefront of 5G has been undone by factors outside of TPG's control," TPG chief David Teoh said in January. 

TPG late last month also flagged that it would cop an almost AU$230 million accounting hit due to its abandonment of the mobile network, with the largest cost being the reduction in value of its unused spectrum licences by AU$92 million.

Earlier this week, TPG reported a Q1 net profit of just AU$47 million, a decrease of 76 percent year on year following the abandonment of its mobile network rollout.

Revenue was down by 1.5 percent to AU$1.2 billion, while earnings before interest, tax, depreciation, and amortisation (EBITDA) sat at AU$420 million for the quarter.

"It has been necessary to recognise an impairment expense of AU$227.4m in the 1H19 results, arising from the group's decision to cease the rollout of its Australian mobile network. The 1H19 reported results also include AU$4.4m of one-off transaction costs relating to the planned merger with Vodafone Hutchison Australia," TPG said.

Excluding these, TPG said its underlying profit was AU$225 million, up 3.2 percent, and EBITDA was AU$424 million.

Vodafone last month announced a full-year revenue increase of 5.5 percent to AU$3.65 billion, with EBITDA jumping by 13.4 percent to AU$1.1 billion.

For its bottom line, net loss was reduced by 30 percent to AU$124.4 million compared to last year's AU$177 million.

Days prior to the Huawei ban, TPG and Vodafone in August confirmed that they entered discussions to form a telecommunications giant, which they say would have an enterprise value of around AU$15 billion. They then announced plans to proceed with their merger a week later.

The new TPG, if the two telcos are allowed to merge, would see Vodafone Australia CEO Inaki Berroeta serve as CEO and Teoh as chair, and would produce revenue of AU$6 billion, EBITDA of AU$1.8 billion, and have an operating free cash flow of AU$900 million, the companies claimed.

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