Australia blocks Telstra-TPG wireless internet deal, sparking legal fight

In paragraphs 1 and 3, this Dec. 20 story has been changed to say that TPG is the No. 3 wireless internet company in Australia and Optus is the No. 2 company. In paragraph 2, the month has been changed from May to February.

Australia’s antitrust regulator stopped a deal between Telstra and TPG, the country’s No. 1 and No. 3 wireless internet companies, to transfer assets. They did this because they were worried about how it would affect competition. This set up a legal battle over access to four million customers.

In a deal announced in February, Telstra Group (TLS.AX) was going to buy spectrum (the airwaves that carry wireless internet) and transmission towers from TPG Telecom Ltd (TPG.AX), while TPG would keep selling 4G and 5G coverage using what would become Telstra’s infrastructure. They didn’t say anything about money.

But Optus, the No. 2 wireless internet provider, which is owned by Singapore Telecommunications (STEL.SI), was against the deal because it would make Telstra even more dominant in the market.

The Australian Competition and Consumer Commission (ACCC) ruled against the plan on Wednesday, saying that it would cause “a real risk that TPG and Optus will invest less in critical infrastructure.”

Telstra and TPG said they will appeal the ACCC’s decision, which they called disappointing and a missed chance for the 17% of Australia’s 25 million people who would be affected by the merger.

The decision means that TPG and the ACCC will go to court again in just over two years. The ACCC stopped TPG from buying CK Hutchison Holdings Ltd’s (0001.HK) Vodafone Hutchison Australia, but the Federal Court overruled them in 2020 and let the deal go through.

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It’s a good thing for Optus, which got a lot of bad press, including from the federal government, after a data breach in October that affected about 10 million customer accounts.

“By rejecting this deal, the ACCC has helped make sure that our regional communities will continue to benefit from competition,” said Optus CEO Kelly Bayer Rosmarin in a statement.

Telstra already has the most customers in most of Australia’s major internet and phone markets, so its shares were flat at midday on Wednesday, while TPG’s were down 3%. The market as a whole was up 1.3%. (.AXJO).

UBS analysts wrote in a client note about TPG, “If our appeal to the Australian Competition Tribunal fails, it could have a longer-term effect on our EBITDA forecasts, even if we don’t count the effect of any additional investments that might be needed to improve regional networks.”

An independent telecommunications analyst named Paul Budde said that the ACCC’s decision showed that Australian competition law was out of touch with business reality because it focused on who owned the infrastructure and not the services.

“You could say that the ACCC hasn’t done enough to move in that direction, or you could say that the industry should have pushed for an overall review of telecoms regulations,” he said in an email.

“The industry and the ACCC will have to get together and come up with a new regulatory system that takes into account reality,” he said.


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