What to make of the ACCC decision not to allow the merger between Vodafone and TPG?
The ACCC is betting on the fact that separately these two companies will provide more competition in the market rather than when they operate combined. In principle that is of course right. However, the telecoms market has been hollowed out and the margins are getting slimmer and slimmer and the only way forwards for the telcos is to cut cost and to build up larger market shares. Mergers are than an obvious solution and we see this happening around the globe.
One argument is that if companies are getting to small, they will further lose out from these efficiencies and will in the end be unable to continue to compete with the dominant players. It seems the ACCC is betting that this will not happen and that both companies will be able to survive and even thrive on their own. Time will tell.
For me an indication that all was not going all that well for TPG was when it very hastily withdrew from the mobile network market, blaming the government’s decision to ban Huawei for it. My reading was that TPG would be more than happy to save that money as it could ride on the back of Vodafone for its mobile network requirements.
My argument has all along been that as long as TPG would stay as a brand in the market and operate as a price competitor there would be room for the ACCC to allow for the merger. Of course I have no idea if the companies came up with concessions and business models that would show the ACCC that competition would not be dampened by the merger. But I would be surprised – because of the commercial importance for the two companies to merge – if they didn’t come up with proposals along those lines.
It will be interesting to see if the announced court case will alter the situation. In the meantime costly time gets wasted by the two companies as the development of 5G is gathering pace and the situation with the NBN will most likely after the election also move into a new phase. In such a situation the distraction of the merger and a potential court case is going to take important management focus away from the core business.
Paul Budde