Australian court verdict shows you can sell a telco spectrum, but you can't make it build a network

Mary Lennighan
By Mary Lennighan

Feb 13, 2020

via Flickr © Fabrizio Russo (CC BY 2.0)

via Flickr © Fabrizio Russo (CC BY 2.0)

  • Court rules in favour of Vodafone/TPG merger
  • ACCC bemoans lost opportunity for stronger competition
  • But a competitive fourth MNO was only ever a pipe dream

Australia's telecom regulator believed it could force fixed broadband provider TPG Telecom to build mobile infrastructure and become the country's fourth MNO but – strangely enough – it was wrong.

On Thursday the Australian federal court ruled in favour of Vodafone and TPG's merger plan, dismissing the ACCC's concerns that such a move would impact on market competition. The telcos announced the merger as long ago as August 2018, but last year the regulator moved to block it and they were forced to take legal action.

The court ruled that the move is unlikely to substantially lessen competition in the mobile market, either now or in future, giving the green light for the pair to team up.

The telcos obviously welcomed the verdict and simultaneously talked up the 5G investment plans it will facilitate; Vodafone insists it will be able to accelerate its 5G rollout as a result.

"For the first time, Australia will have a third, fully-integrated telecommunications company," said Iñaki Berroeta, CEO of Vodafone Hutchison Australia, to give the operator its full title.

But the regulator is not happy.

"Australian consumers have lost a once-in-a-generation opportunity for stronger competition and cheaper mobile telecommunications services with this merger now allowed to proceed," said ACCC chair Rod Sims.

The stronger competition he refers to is nothing but a pipe dream though.

As it has reiterated many times, the ACCC opposed the merger because it believed that if it did not hook up with Vodafone, TPG would continue with the rollout of its own mobile network "and become an innovative and disruptive competitor in Australia's concentrated mobile telecommunications market."

The trouble with that belief is that TPG had made it pretty clear that it would not roll out its own network. But even if it had, there's no evidence to suggest it would have succeeded in having any real impact on the market. The ACCC itself notes that Telstra, Optus and Vodafone together hold almost 90% of the mobile market. In its view, that indicates a need for greater competition, but back in the real world, it suggests a virtually insurmountable challenge for a new player; indeed, even third operator Vodafone is struggling to take on the big two, its market share stood at 19% in June last year, according to the ACCC, flat compared with the previous year and only one percentage point above its June 2017 level. Revenues are under pressure and the business posted a loss last year.

TPG holds A$1.26 billion worth of mobile spectrum, according to the ACCC, and began rolling out a small cells-based network in 2017 that it said gave it an upgrade path to 5G. It called a halt to the build a year ago, attributing its decision to the Australian government's ban on the use of Huawei equipment for 5G, although clearly the proposed Vodafone tie-up played a critical role.

The ACCC insists that TPG could overcome what it described as "technical and commercial challenges" and carry on with the network build...but ultimately it is unable to force the telco to carry on deploying infrastructure.

And that's probably a good thing for Australia.

You could argue that a four-player market would lead to greater choice and lower prices for consumers, but the more likely outcome would be a market with two dominant operators and two struggling to stay afloat. A stronger third operator at least has a chance to compete effectively.

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