Australian regulator casts doubt on telco mega-merger, shares slammed

Sydney

THE Australian consumer watchdog warned that a A$15 billion (S$14.9 billion) tie-up between the local arm of Britain's Vodafone Group and internet provider TPG Telecom Ltd may hurt competition, sending shares down across the sector.

The Australian Competition and Consumer Commission (ACCC) stopped short of blocking the telecoms mega-merger but said it was concerned that the deal would remove the motivation of two of the industry's top four players to offer cheaper prices.

Vodafone mainly runs a mobile phone business in Australia in a joint venture with Hutchison Telecommunications (Australia) Ltd, while TPG mainly runs an Internet business. The deal would stop both from competing in each other's markets, the ACCC said in a statement on Thursday.

"A mobile market with three major players rather than four is likely to lead to higher prices and less innovative plans for mobile customers," ACCC chairman Rod Sims said in the statement. In the Internet market, "if TPG remains separate from Vodafone, it appears likely to need to continue to adopt an aggressive pricing strategy".

TPG shares fell 17 per cent while Hutchison fell 21 per cent, in a higher overall market.

The declines spread to other telecoms stocks, with No 1 player Telstra Corp Ltd down 3 per cent as investors fretted about more competition.

Stocks of all the companies had jumped sharply when the deal was announced in August. "When there's uncertainty, then the market will vote with its feet," Lonsec Research equity strategist Danial Moradi said.

The regulator's decision was surprising because TPG was not a major competitor in the mobile market and Vodafone did not have any market share in broadband fixed-line services, he said.

In a sign of how confident the companies were that the deal would take place, they jointly paid the government A$263 million for the use of certain bandwidths of mobile phone spectrum on Dec 10. The Australian Communications and Media Authority, which ran that sale, did not immediately respond to a request for comment.

TPG and Vodafone said in separate statements that they were working with regulators and remained confident that the deal could succeed.

Paul Budde, an independent telecoms analyst, said the companies could offer to split their businesses into high-cost and low-cost divisions to win over the regulator.

Morgans Stockbroking downgraded TPG to "hold" from "add", saying its rating was predicated on the merger going forward.

The ACCC said it would give a final decision on March 28, 2019. REUTERS