Telco’s crossed lines in Vodafone takeover bid
TPG Telecom’s aggressive spruiking of its mobile ambitions could end up scuttling its mooted $15 billion merger with Vodafone Hutchison Australia, industry experts says.
Analysts say they are surprised by the aggressive tone taken by the Australian Competition and Consumer Commission toward the merger in a preliminary statement this week.
Fraser McLeish, an analyst at investment house MST Marquee, said the ACCC’s initial assessment was based on an assumption that the mobile network being built by TPG would move the dial on competition in that sector.
However, there was little evidence of that at the moment, according to Mr McLeish.
“The ACCC’s statement of issues regarding the TPG/Vodafone merger is more strongly worded than what we would have expected,” he said.
Mr McLeish said the fact the statement “highlighted for the supply of mobile services’ as an ‘issue of concern’ rather than an ‘issue that may raise concern’ is probably the major surprise”.
“A key problem for TPG is that it has talked up its mobile strategy significantly and already outlined aggressive pricing intentions,” he said.
“These comments are now hard to credibly walk away from.”
“TPG is well behind in its rollout and has not launched (mobile) service.
“That was partially due to a slowdown due to the merger, but also due to difficulties obtaining cell sites, issues around (Chinese telco) Huawei and generally the fact that it’s hard to build a mobile network from scratch in Australia, particularly at low cost.”
TPG is investing about $600 million on its mobile network, which Mr McLeish said would not be comparable to the existing mobile networks.
While the chance of the merger being rejected has increased, he warned that it would be a significant regulat‘competition ory overreach from the regulator, especially with TPG’s network in a nascent state.
An outright rejection from the ACCC would exert significant pressure on TPG’s balance sheet, with Vertium Asset Management chief investment officer Jason Teh warning the telco needed the merger to proceed.
“The stakes are very high for TPG and is facing an earnings collapse without this merger, with its margins squeezed by the NBN,” Mr Teh said.