Late on Wednesday afternoon the ACCC revealed that it opposes the proposed merger between TPG Telecom Ltd (ASX: TPM) and Vodafone Hutchison Australia (ASX: HTA).
Unsurprisingly, this led to their shares being sold off by investors. The TPG Telecom share price crashed 13.5% lower and the Vodafone Hutchison Australia share price sank a massive 28% lower.
Why was the merger blocked?
As I mentioned in detail here, the ACCC believes the proposed merger will reduce competition and contestability in the fixed broadband services market and "substantially lessen competition in the supply of mobile services because the proposed merger would preclude TPG entering as the fourth mobile network operator in Australia."
The competition watchdog believes that blocking the merger will result in TPG rolling out a mobile network, which would be a big positive for consumers.
This is because "TPG has a proven track record of disrupting the telecommunications sector" and "is likely to be a vigorous and innovative supplier of mobile services in Australia, offering cheaper mobile plans with large data allowances, and competing strongly against incumbents."
What now?
Both companies have acknowledged the ACCC's decision but plan to challenge it in the Federal Court.
TPG executive chairman, David Teoh, said: "While we respect the ACCC's process, its decision has significant implications for Australian consumers, and in our view, must be challenged."
He continues to believe the merger would result in greatly enhanced competitive dynamics in the industry and superior choice and outcomes for consumers.
Mr Teoh also suggested that not allowing the merger would further entrench the "enormous power" of Telstra Corporation Ltd (ASX: TLS) and Optus. Which would not be good news for the industry given the arrival of 5G internet in Australia.
He said: "With the advent of 5G next generation mobile technology, Australian consumers more than ever need a strong challenger."
In light of this, the company believes "there is a compelling case to seek orders from the Federal Court of Australia that the proposed merger will not, and is not likely to, substantially lessen competition."
Together with Vodafone Australia, the company intends to pursue proceedings in the Federal Court at the earliest possible time.
