TPG Telecom will lift prices on Vodafone brand, despite block on Telstra sharing deal: analysts say

The ACCC blocked the deal, saying it would consolidate Telstra’s already dominant market position and discourage innovation and investment from competitors.

The regulator believed the deal could reduce investment and competition in rural mobile infrastructure from rivals such as Optus, and that the Telstra and TPG companies did not go far enough to address concerns.

Telstra and TPG are appealing the decision to the competition court.

Morningstar analyst Brian Han said he was “surprised” by the decision in a note to clients, adding that the market’s reaction was also “curious, given that it never considered any benefits from the proposed deal.”

TPG shares fell a quick 5.8 percent to $4.50 after Wednesday’s decision, but recovered to $4.72 by the time the market closed as the telco signaled its intention to appeal the decision before the competition court.

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“It would have made TPG a serious third player in regional markets where its mobile revenue share is less than 10 per cent, not to mention being able to compete on a more level playing field with Telstra and Optus for metro mobile customers and companies that they value the country coverage,” he said.

Han believed the block showed “that there may still be a lingering schism between the ACCC and TPG over the nasty Vodafone merger process in 2019-2020”.

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However, he said the “deal is not completely dead either” with Telstra and TPG to lodge an appeal within the next 21 days. Han wondered if the ACCC might be more welcoming of a network sharing deal between Optus and TPG, despite TPG’s protests, because of Telstra’s dominance of the rural market.

Han made no change to his rating of TPG, with its expected benefits from the deal “from 2024 [onwards] they were less than 2 percent of the group’s total.”

But this disagrees with Mr. Choi, who says a block on the deal would lead to up to $200 million in lost earnings over the long term. But he also stressed that the deal was not dead because of the regulator’s relatively poor court record and had also lost merger cases in court.

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“The ACCC appears to have a mixed record of opposition to mergers in the Court. The following are examples where the Court has granted merger clearance despite the ACCC’s opposition: Tabcorp/Tatts (2017), Sea Swift/Toll (2016), AGL/MacGen (2014), Air NZ/Qantas (2002),” Choi said.

“We also note that the ACCC has lost a number of contested merger cases in the Federal Court, including: Vodafone v ACCC (2020).”


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