INSIGHT

Court clears Vodafone/TPG merger

By Robert Walker
ACCC Competition law Telecommunications

In brief 2 min read

Allens acted for Vodafone Hutchison Australia Pty Limited (VHA) to secure the Federal Court's approval for its merger with TPG Telecom Limited (TPG).

In finding against the ACCC, Justice Middleton held the merger would not have the likely effect of substantially lessening competition.

Key takeaways

  • The ACCC has hardened its stance on merger reviews.
  • Merger cases turn on their facts. It is important to clearly articulate to the court, supported by credible lay and expert evidence, the likely impact of a merger on the competitive dynamics of a market.
  • The Federal Court recognises the need for swift resolution of contested mergers and will work to an expedited timetable for cases of this type.

Background

A proposed merger between VHA and TPG Telecom was announced in August 2018.

VHA is one of Australia's three mobile network operators. TPG primarily focuses on fixed-line services. In April 2017, TPG announced its plans to enter the Australian market as a fourth mobile network operator but abandoned its plans following the Australian government's ban on using 'high-risk vendors' as equipment providers in 5G mobile networks.

After conducting a lengthy public review, the ACCC opposed the merger. The ACCC contended that TPG had a commercial imperative to roll out its own mobile network and was the 'best prospect' Australia had for a fourth mobile network operator entering the market. It followed, said the ACCC, that this would enhance competition.

The trial

Allens acted for VHA in seeking a declaration from the Federal Court that the merger would not have the likely effect of substantially lessening competition. The case proceeded on a highly accelerated timetable, being heard around three months after proceedings were commenced.

The key issues were:

  • Would TPG roll out a mobile network if the merger did not go ahead?
  • To what extent would TPG be competitive with the three other mobile network operators?
  • In the absence of the merger, to what extent would a separate VHA and TPG compete with Telstra and Optus in a meaningful way?

The decision

In clearing the merger, Justice Middleton found the following:

To leave TPG and Vodafone as separate entities in current market conditions will not promote competition in the retail mobile market.

  • There is no 'real chance' that TPG will roll out a retail mobile network or become an effective fourth mobile network operator in Australia in the relevant future. While there was a moment in 2017 for a business opportunity to be taken to roll out a retail mobile service - that moment has now passed.
  • To leave TPG and Vodafone as separate entities in current market conditions will not promote competition in the retail mobile market. It is commercially rational for Vodafone and TPG to merge, with the result that both companies will be enhanced and will be a stronger force against Telstra and Optus.
  • The court accepted the evidence led by Vodafone and TPG that the merger creates efficiencies and will lead to a better outcome for Australian consumers.

If you would like to further discuss the decision and the implications for merger parties going forward, please get in touch with one of our team members.