Australians hoping to get their hands on TPG Telecom’s mooted $9.99 unlimited mobile phone plans may find the option won’t be on the table if a $15 billion merger with Vodafone Hutchison Australia goes ahead, despite the telecommunications companies hoping the tie-up will give them a competitive edge against Optus and Telstra.
TPG Telecom boss David Teoh said on Thursday there would probably be bundling benefits for customers, with the two brands to take greater market share in fixed and mobile. But when it came to the future availability of its much-awaited $9.99-a-month plans, revealed in May, Mr Teoh said: “Who knows?”
There could be cheaper plans under bundling arrangements, with TPG’s 2 million customers on fixed broadband expected to be "complementary" to Vodafone's mobile base, but Mr Teoh would not commit to previously revealed plans for the rock-bottom mobile offerings that have threatened to put significant pressure on other major telcos’ squeezed margins.
Vodafone chief executive Inaki Berroeta said the planned merger was expected to allow the two smaller players to disrupt Optus and Telstra, and lead to more competition rather than less. TPG's share price jumped 15.36 per cent to $9.09 by 1.40pm, while Telstra's share price was up 2.23 per cent to $3.21 by 1.40pm.
TPG and Vodafone, which last week revealed they had entered "exploratory discussions" about a tie-up, on Thursday confirmed they had reached agreement on an all-scrip "merger of equals". TPG’s shareholders will emerge with 49.9 per cent of the combined telecommunications company and Vodafone shareholders will hold 50.1 per cent. The new company will be called TPG Telecom Ltd, and Mr Teoh will own 17.12 per cent.
The Foreign Investment Review Board and the Australian Competition and Consumer Commission (ACCC) will need to approve the deal. ACCC chair Rod Sims said this process would take about 12 weeks. The review would look at competitive impacts on mobile services, where TPG has a growing presence, and fixed line "where Vodafone is a discounter".
Mr Berroeta, who will become chief executive of the merged entity, told Fairfax Media he had a “high degree of confidence” the merger would be approved by the competition regulator, saying the consolidation would give the combined telcos greater capacity to take market share from the bigger providers.
“The way I believe people will look at it is the benefit it will bring to the customer,” Mr Berroeta said. “It gives us a lot of opportunity to innovate."
He said the market ultimately needed “strong players” and competition wasn’t necessarily about the “number” of participants, but their ability to compete. TPG Telecom typically operates in the fixed space, while Vodafone is known for its mobile customers. TPG began moving its mobile customers over from Optus' network to Vodafone's in 2015.
The ACCC has regularly pointed to the entrance of TPG Telecom, and its planned fourth mobile network, as bringing greater competition to the mobile industry.
“We are doing this to really compete harder [with Optus and Telstra], we want to grow our market share,” Mr Berroeta said.
“The idea to combine the businesses has been around in my head for many years, and David’s [Teoh, chief executive of TPG] head.
“Whether TPG was going mobile or not [we were planning to merge] ... it was a matter of when."
Citi analyst David Kaynes told investors the decision was a “long-term positive” for Telstra and Optus, given there would be three mobile operators rather than four, and the “risk of irrational competition” would be reduced.
“However, in the near term, this removes the current balance sheet constraints from both TPG and Vodafone,” he said.
“This should allow the new merged entity to start competing for market share on a much earlier time-frame than we expected from TPG as a fourth mobile operator.”
He said the new entity would be a “much more formidable competitor” and would be looking to get market share across the telcommunications industry, rather than focused in consumer broadband and mobile.
A Macquarie Research note described the telcos as "complementary", saying it would create "a scale challenger that is better positioned to compete" and would create benefits from increased scale and some cost synergies.
TPG directors Robert Millner and Shane Teoh, two nominees from Vodafone, two from Hutchison Australia and two independent directors will make up the new board.
TPG directors have recommended shareholders vote in favour of the deal, if there is no superior proposal.