by Tim Lohman

ACCC approves Voda-Hutch merger

Jun 01, 20094 mins
GovernmentGovernment ITTelecommunications

Following a three month investigation, the Australian Competition and Consumer Commission (ACCC) has given the greenlight for the merger of telecommunications companies Vodafone and Hutchinson to go ahead.

Explaining its decision, the competition regulator said the changing nature of the mobile telecommunications industry and the increasing need for mobile network operators to have sufficient scale to be able to continue to make significant investments in their network capabilities was a significant factor in the decision.

A spokesperson from the ACCC said that, absent the merger, the parties would have been unlikely to sustain the significant investment in their mobile networks needed to provide competitive high speed data services.

“Ongoing investments are needed to meet the increased customer demand for bandwidth-hungry data services, including mobile broadband. In this respect, the ACCC considers that mobile voice and data services will continue to converge in the future,” Graeme Samuel, Chairman of the ACCC, said in a statement.

The ACCC also said that as a result of the merger, Vodafone and Hutchison would able to sustain vigorous price competition in the longer term.

Similarly, the pricing commitment issued on 25 May 2009 by the merger parties has not had any bearing on the ACCC’s decision, it said.

“Behavioural measures, such as this, are generally viewed by the ACCC as an unattractive merger remedy,” Samuel said. “Such measures are not likely to be considered acceptable by the ACCC to assuage competition concerns.”

Vodafone has 3.97 million customers and 300,000 mobile virtual network operator (MVNO) customers in Australia. Hutchison, under its 3 brand, has more than 2 million customers.

Jason Leung, analysts at IDC, said the research firm believed the merger would be unlikely lessen competition.

“In fact, the opposite is a more likely scenario if VHA are to introduce innovative and competitive products and solutions to the market,” he said. “VHA as a merged entity will have the scale and scope to pose a serious threat to Optus and even get Telstra’s attention. Having three strong mobile operators in the market will enhance competition and in turn force the rest of the market to respond to competitive moves.”

He said neither Vodafone nor Hutchison were considered strong, long-term businesses, and therefore it was unlikely that large investments would have been made beyond the already-announced and in-progress upgrades if the merger had been turned down.

“Vodafone and Hutchison ‘3’ as separate entities would unlikely be able to sustain competitive pricing, particularly as both service providers do not own their entire networks, or have roaming agreements with other network providers,” he said. “Once VHA have successfully merged and consolidated assets and networks, we should see a long term serious and stable competitor who will be able to continue vigorous pricing strategies.”

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Speaking to lt;Igt;CIOlt;/Igt; in April, Telecommunications analyst Paul Budde there was an argument in favour of the merger that having three stronger competitors was a more effective competition regime than two stronger and two weaker ones.

“However, by moving from four competitors to three there is more room for collusion and not competing against each other too fiercely,” he said at the time.

Budde said that if the European telecommunications experience was anything to go by, the ACCC would have difficulty in regulating issues of collusion if the Vodafone and Hutchison merger was approved.

“It may feels like collusion, look like collusion, smell like collusion, so it most probably is collusion, yet it is damn hard to regulate,” he said in April. “The EU has had this issue for nearly a decade, but despite regulators identifying misbehaviour, they have been unsuccessful it prosecuting it in court.”

Vodafone, announced in February this year, that it intended to form a 50-50 joint venture company with rival mobile carrier Hutchison Whampoa, owner of the “3” brand, and offer services under the new name VHA.

In April, the ACCC issued a Statement of Issues which warned that the proposed merger between Hutchison and Vodafone could lead to increased prices for mobile telephony and mobile broadband (MBB).

In May, Hutchison flagged that its future in Australia could be in doubt if its proposed merger with Vodafone was not given the green light by the ACCC.