The ratification of a planned network and spectrum sharing agreement between Telstra and TPG is in doubt due to concerns that it will enrich Telstra financially and have “difficult to predict” effects on prices.
Last week, the Australian Competition and Consumer Commission (ACCC) provided an early assessment of the idea, which was first presented in February.
The short version of the ACCC’s 52-page study [pdf] is that the regulator is not persuaded by the deal’s benefits, but is still open to arguments before making a final judgement, which is anticipated to be made in “early December.”
A number of fees and wholesale charges that TPG Telecom will pay Telstra are one of the main points of contention. In particular, how these fees are factored into TPG’s plans and the revenue is factored into Telstra’s plans, as well as whether or not this results in positive outcomes for customers, are key points of contention.
It will be more difficult for TPG Telecom to persuade the regulator that a merger with Telstra is genuinely the most advantageous business and customer strategy for the company’s future.
Simply put, the ACCC believes TPG has other options and is working to assess the viability of those options.
The ACCC suggests that TPG use certain regional frequency for a “targeted” network expansion while figuring out how to monetize or otherwise sell the remaining spectrum.
The ACCC has long held the view that Australia benefits from having more mobile players. In the past, it unsuccessfully opposed the TPG-Vodafone merger in the hopes that the two businesses might continue to operate independently.
The ACCC stated that it is still unclear and “impossible to forecast” how a Telstra-TPG agreement would affect pricing competition in the entire mobile market.
However, according to the regulator’s early assessment, TPG will eventually hike its prices.
The ACCC stated, “The ACCC’s preliminary view is that TPG’s proposed transaction will incentivize TPG to raise prices in the future (although the effect on the quality adjusted price is unknown)” due to TPG’s immediate improvement in the quality of its product and the increased cost to TPG of providing services.
