Telstra and TPG to appeal ACCC’s decision to not authorise regional network sharing deal

Australia’s largest telecommunications company Telstra (ASX: TLS) has today announced it will appeal a decision from the consumer watchdog to not authorise a proposed regional mobile network sharing deal with TPG Telecom (ASX: TPG).

Labelled ‘extremely disappointing’ by Telstra CEO Vicki Brady, the Australian Competition and Consumer Commission’s (ACCC) decision meant it believed the deal would ‘substantially lessen competition’.

Under the proposed terms, TPG - one of Sydney’s Top 50 Companies - would have gained access to around 3,700 of Telstra’s mobile network assets.

In addition, Telstra would have gained access to TPG’s spectrum across 4G and 5G, allowing it to grow its network, increase capacity and continue to be Australia’s largest and fastest network. 

“We examined the proposed arrangements in considerable detail. While there are some benefits, it is our view that the proposed arrangements will likely lead to less competition in the longer term and leave Australian mobile users worse off over time, in terms of price and regional coverage,” said ACCC commissioner Liza Carver.

“Mobile networks are of critical importance to many aspects of our lives, including our livelihood, our wellbeing and our ability to keep in touch with friends and family. Any reduction in competition will have very wide-ranging impacts on customers, including higher prices and reduced quality and coverage.

“Entering into the arrangements proposed by Telstra and TPG will represent a significant change to the structure of the market that would have long-term consequences.”

Telstra CEO Brady said the decision was a “massive missed opportunity for the people, businesses and communities of regional Australia”.

“This innovative agreement will deliver real competition-driven benefits for regional Australia, something recognised by the ACCC in its determination,” Brady said.

“It also delivers better use of the Government’s spectrum assets by unlocking unused spectrum that TPG holds in regional Australia but isn’t using.

“Despite today’s disappointing news, I’d like to thank all the people who recognised the benefits this agreement could bring and spoke up in favour of it. We will keep pushing for the right outcome for you.”

TPG chief executive Iñaki Berroeta said the telco would also appeal the decision, and was currently preparing its application to the Australian Competition Tribunal.

“The ACCC’s decision to deny the TPG Telecom- Telstra network sharing arrangement is a missed opportunity to deliver greater competition and choice for the people of regional Australia,” Berroeta said.

“We are disappointed the ACCC has chosen to ignore the overwhelming evidence submitted from leading economists, competition experts and regional communities outlining the benefits of the proposed arrangement to competition and consumer choice.

“If it had been authorised, the arrangement would have freed regional Australia from its current mobile duopoly, and the increased competition from TPG would have placed downward pressure on mobile pricing.”

On the other end of the spectrum, telco competitor Optus has welcomed the ACCC’s decision, with CEO Kelly Bayer Rosmarin saying it “reinforces the importance of infrastructure-based competition and investment in [the] communications sector”.

“All Australians benefit from competitive investment in telecommunications services, and for more than 30 years Optus has invested to provide Australians with choice,” Bayer Rosmarin said.

“By knocking back this deal, the ACCC has helped ensure that our regional communities will continue to benefit from competition in a sector that is fundamental to our digital economy and future prospects.

“Optus reaffirms its commitment to providing Australia’s regional communities with a strong network and great service. This will be achieved through our ongoing investment program and focus on innovation for customers through our Living Network and other value adding products and services.”

Optus had previously lodged submissions with the ACCC with regard to the proposed deal, noting in June that if the transaction proceeded ‘the market structure [would] be more acutely characterised by a monopoly provider’.

The telco claimed the deal would have led to higher prices nationally, lower investment in the communications market, lower network and service quality, less choice for regional consumers and less resiliency in the Australian communications infrastructure.

ACCC: Deal would entrench Telstra as ‘dominant’ telco

Though the ACCC is set to release its full determination tomorrow, it has released a summary of reasons supporting its decision today following ‘extensive’ public consultation and the receipt of more than 170 submissions, 40 witness statements and expert reports.

First, the ACCC said the deal would have a negative impact on coverage, network quality and innovation in the telecommunications space.

The watchdog said that the proposed arrangements would result in TPG decommissioning or transferring its mobile sites in regional and urban fringe areas to Telstra, giving Telstra access to most of its regional spectrum.

By using part of the Telstra network, TPG’s coverage would have increased from 96 per cent to 98.8 per cent of the population, but the ACCC considers that just a ‘short-term benefit’ for the smaller telco.

“The enduring and more substantial impact of the proposed arrangements would be to lessen infrastructure-based competition which would make consumers, including those in regional areas, worse off over time,” ACCC commissioner Carver said.

“Competition between separate mobile networks drives companies to improve coverage for mobile users and to offer new technologies to more areas. For example, when Optus improves its regional network, Telstra responds by improving its network to maintain its market position.

“Infrastructure competition is what drives investments by mobile companies in broader, deeper and faster mobile coverage. We have looked beyond the potential short-term effects to consider the long-term impact from the reduced incentive to innovate and improve networks. We have concluded the proposed arrangements would likely significantly weaken this competitive process.”

Further, the ACCC claimed the deal would have ‘entrenched’ Telstra’s dominant position in the mobile market as it would gain access to a ‘high proportion’ of key spectrum in regional and urban fringe areas - which is already quite limited.

“Telstra is already the strongest mobile network operator in Australia and has a very high share of regional customers. We consider that the proposed arrangements would lock up valuable spectrum with Telstra, raising barriers to entry and expansion and reducing the incentives and ability of rivals to compete,” Carver said.

“Telstra and TPG are proposing the arrangements at a time when each of Telstra, TPG and Optus are competing in the roll-out of 5G infrastructure including in regional areas.

“After careful consideration of all the information available to us, including internal confidential information from the carriers, we consider that there is a real risk that TPG and Optus will invest less in critical infrastructure than they would if the proposed arrangements do not proceed.”

Shares in TPG are down 5.03 per cent to $4.53 per share at 11.10am AEDT, while Telstra shares are steady at the time of writing.