Times are tough for investors in the major Australian telcos. Despite posting recoveries on Monday, the share prices of TPG Telecom Ltd (ASX:TPM), Telstra Corporation Ltd (ASX:TLS) and Vocus Group Ltd (ASX:VOC) have all been hit hard over the last week.
TPG has fared the worst, with more than 10% shaved off its market cap over the last five trading days. However Telstra isn't far behind, with its share price almost 6% below where it was a week ago. Vocus has performed the best of the three: after its shares rallied strongly on Monday it is now only down about 1%.
The key driver of the volatility was the ACCC's announcement on Thursday that it had concerns about the proposed merger of equals between TPG and Vodafone Australia.
In its media release, the competition regulator expressed a preliminary view that "competition in the market would be reduced as a result" of the merger and that "a mobile market with three major players rather than four is likely to lead to higher prices and less innovative plans for mobile customers."
The TPG share price plunged almost 17% on the day of the ACCC media release, while Hutchison Telecommunications (Australia) Limited (ASX:HTA), the ASX-listed joint venture between Vodafone Australia and Hutchison Telecommunications Australia, plummeted over 21%.
The announcement rattled shareholders in Telstra and Vocus as well, dragging down the prices of the other telcos. The selloff seemed to lend some credence to the ACCC's concerns; investors also felt that a market with three major players would have been more profitable for the remaining telcos, and the ACCC announcement threatening the TPG-Vodafone merger injected some risk back into the industry.
The ACCC announcement soured what could have actually been a decent news week for TPG. Its joint venture with Vodafone successfully acquired high-speed 5G spectrum in the urban centres of Sydney, Melbourne, Brisbane, Canberra, Adelaide and Perth at a cost of $263 million, due to be paid in 2020.
This was a significant step towards it establishing a mobile network capable of rivalling Optus and Telstra, particularly in Australia's more densely populated capital cities.
Meanwhile, Telstra announced that it was paying $386 million for 5G spectrum in all the major Australian cities, as well as regional areas. This would allow Telstra to maintain broader national coverage than the other telecommunications providers.
Foolish takeaway
I think that the uncertainty around the TPG-Vodafone merger might actually provide a decent opportunity for investors to snap up cheap shares in Vocus Group. Vocus focusses more exclusively on wholesale and government clients and isn't in direct competition with the other telcos for a share of the mobile market. Therefore, it should be able to more easily shrug off any industry tumult caused by the success or failure of the TPG-Vodafone merger.
After a rocky end to FY18, I've been impressed by the way in which the company's new leadership team has rebounded in FY19. As a shareholder myself, I'm pleased to see the company pursuing growth opportunities, such as operating its 4,600km long Australian Singapore Cable and beginning construction on a Coral Sea Cable linking Australia with the Solomon Islands and Papua New Guinea.
These international growth opportunities differentiate Vocus from the other major telcos, and could wind up delivering better long-term returns to its shareholders.
