TPG and Vodafone announce challenge to ACCC opposition to merger

By Thomas Jones, Tom Macken, Joel Diqual

05-2019

On the 8th of May, 2019, the Australian Competition and Consumer Commission (ACCC) officially announced that it had decided to oppose the proposed merger between TPG Telecom Limited (TPG), a supplier of retail fixed broadband and voice services and the owner of an extensive fibre network in Australia, and Vodafone Hutchison Australia Pty Ltd (Vodafone), the owner and operator of Australia's third largest 3G and 4G mobile network. Due to an administrative error on the part of the ACCC, the ACCC's decision was in fact published a day earlier than expected, whilst the stock markets remained open, causing TPG's share price to fall by 13.5 per cent prior to the ACCC's official announcement.

Prior to the announcement by TPG and Vodafone of their intention to merge in August 2018, TPG had, in 2017, announced plans to become a mobile network operator following its successful bid for 2 x 10MHz of 700 MHz spectrum at a price of $1.26 billion, including a $600 million investment to deploy equipment. Following its announcement, TPG starting rolling out a 4G network using Huawei equipment, with the aim of upgrading the small-cell technology to 5G in the future. It also announced that, once its mobile network became operational, it would be offering mobile plans with unlimited data free of charge for six months and at $9.99 per month thereafter.  However, during the rollout of its mobile network, the Australian Government decided to ban Huawei and ZTE from supplying 5G network technology in Australia, citing national security concerns, and TPG subsequently decided to abandon its plans to build Australia's fourth mobile network, claiming that it was no longer financially feasible.

It was against this contextual backdrop, and within the statutory framework of Australia's Competition and Consumer Act 2010 (Cth) (CCA), that the ACCC conducted its review of the proposed merger between TPG and Vodafone. Section 50 of the CCA provides, inter alia, that a corporation or person must not (directly or indirectly), acquire a business's shares or assets 'if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market'[1]. In determining whether or not a certain acquisition is likely to result in a 'substantial lessening of competition' in a particular market, the ACCC can take into account a number of factors including 'the height of barriers to entry to the market'[2], 'the level of concentration in the market'[3], 'the dynamic characteristics of the market, including growth, innovation and product differentiation'[4] and the 'extent to which substitutes are available in the market or are likely to be available in the market'[5]. The ACCC is required to engage in a counterfactual analysis, and consider what is likely to happen in the market in the future both with and without the merger.

Based on its application of section 50 of the CCA, the ACCC ultimately concluded that the market for mobile services was highly concentrated in Australia and that a proposed merger between TPG and Vodafone would 'reduce competition and contestability in this sector'.[6] In its media release, the ACCC stated that 'Australia already has a very concentrated mobile services market, with the three network operators, Telstra, Optus and Vodafone, having over 87 per cent share. Similarly, the fixed broadband market is concentrated, with Telstra, TPG and Optus having approximately 85 per cent share'[7].

Notwithstanding TPG's stated position that it was no longer rolling out its own mobile network, the ACCC formed a view that TPG remained the 'best prospect' that Australia had for a new mobile network operator to enter the telecommunications market and strengthen competition in the supply of mobile services to consumers. Comments made by Rod Sims, Chairman of the ACCC, in the media following the ACCC's announcement to block the proposed merger indicate that TPG's 'unlimited' mobile plan was central to the ACCC's decision making in this respect.  The ACCC concluded that, by blocking the proposed merger, there was a 'real chance TPG will roll out a mobile network'[8] and become the fourth mobile network operator in Australia.  

TPG and Vodafone have announced that they intend to challenge the ACCC's decision in the Federal Court. Options include seeking a declaration from the Federal Court that the merger will not substantially lessen competition or pursuing the merger and forcing the ACCC to seek an injunction restraining them.



[1] Competition and Consumer Act 2010 (Cth), s 50.

[2] Ibid, s 50(3)(b).

[3] Ibid, s 50(3)(c).

[4] Ibid, s 50(3)(g).

[5] Ibid, s 50(3)(f).

[6] https://www.accc.gov.au/media-release/accc-opposes-tpg-vodafone-merger.

[7] Ibid.

[8] https://www.accc.gov.au/media-release/accc-opposes-tpg-vodafone-merger.