$15bn mobile merger given go ahead
Two of Australia's biggest mobile network operators will be allowed to merge after successfully appealing against a decision by the consumer watchdog.
Justice John Middleton delivered the decision in the Federal Court this morning, after a three-week hearing in September last year.
He said the merger wouldn't substantially reduce competition and so there was no legal reason it couldn't go ahead.
The Australian Competition and Consumer Commission (ACCC) has four weeks to lodge an appeal.
The ACCC first raised concerns about a proposed merger between Vodafone Hutchison Australia and TPG Telecom in December 2018.
About the same time, a joint venture between Vodafone and TPG called Mobile JV bought $263 million worth of spectrum at the most recent auction for the frequencies that carry your mobile data and phone calls.
A few months later in May of last year, the ACCC announced they would oppose the $15 billion merger on the grounds that it would cause further consolidation in Australia's already "very concentrated mobile phone market".
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The ACCC raised concerns that Telstra, Optus and Vodafone, who together operate the three competing mobile phone networks, held 87 per cent of the market.
Similarly, Telstra, Optus and TPG dominated the fixed line broadband market with 85 per cent share between them.
The networks operated by the three telcos also support mobile virtual network operators (MVNOs), such as TPG.
MVNOs buy wholesale access to mobile phone networks then sell it on to their customers, a bit like the way the national broadband network operates.
TPG switched from Optus to Vodafone in 2015.
The company had sought to get out of the MVNO game by building its own 4G network, but said it abandoned those plans after the federal government banned the use of Huawei technology.
The telco said that ban made building a network too expensive.
It later emerged in court that the network was so prized by TPG's reclusive billionaire boss David Teoh that the company made last minute adjustments to financials in order to secure funding.
Over the course of a weekend, the proposed value of the network was changed from negative $290 million to $779 million by increasing the amount of customers it expected to acquire each month from 45,000 to 60,000, lowering its cost of capital, and extending its time frame from seven to 12 years.
The changes were made to secure a Macquarie Bank-led equity raise.
The bank only wanted to raise the funding if the network had a positive value.
This revelation and others relating to Mr Teoh's running of TPG, including a startling lack of written documentation, revealed a seeming dictatorship within the company.
In the aftermath of his court appearance, Mr Teoh was painted as leading an army of "yes men" who supported the ambitious and seemingly ad hoc decisions he made without much scrutiny.
"We are not that bureaucratic," Mr Teoh told the court. "We are very agile, and sometimes we do things and we meet frequently and we talk frequently. So things are moving very fast in the company."
When asked by the ACCC's counsel Michael Hodge QC if anyone on the TPG board, which includes his son Shane, asked why there was no business plan to support spending $900 million on spectrum for the proposed network, Mr Teoh said no one asked because they trusted him.
"I have the trust of my board. So that is a very important factor," he said in court.
Mr Teoh also told the court the network wasn't abandoned because of the cost of buying other equipment, but because TPG wouldn't be able to upgrade it to 5G in the future due to a lack of spectrum.
The ACCC's decision to block the merger largely hinged on its opinion that TPG would go ahead and build a fourth mobile phone network in Australia anyway if they were prevented from merging.
This would increase competition and place further downward pressure on prices for consumers, in the eyes of the ACCC.
TPG and Vodafone both disputed this, and in fact claimed they were too weak to compete with Telstra and Optus unless they were allowed to merge.
They argued that a merger would create a stronger company better able to compete with the two bigger telcos, which would be better than two weaker companies fighting over the scraps.
Both companies were placed in a trading halt on the ASX this morning in the lead-up to the decision.