TPG’s partnership with Vodafone is the latest tectonic shift in a telco landscape in which some players are coming together, others are moving apart and some are disappearing altogether.
How the sector will end up looking is hard to predict, not least because the competition watchdog aims to ensure consumers aren’t shortchanged by mergers, takeovers and link-ups, but it’s safe to say it will be vastly different.
The TPG and Vodafone deal announced on Wednesday came just two days after M2 Group and Vocus Communications, which had already merged with rival Amcom this year, announced a plan to merge into a $3 billion heavyweight.
TPG, which only recently got approval from the ACCC for its $1.6 billion takeover of iiNet, will now expand its NBN-rival dark fibre network to carry Vodafone Australia’s mobile data.
The $1 billion deal may or may not represent a step toward a merger, but it does put pressure on the likes of Telstra.
“The risk to Telstra’s market share in consumer broadband is definitely rising,” IG Markets analyst Angus Nicholson said.
“You’re going to see margins squeezed across the board in the consumer broadband sector.
“Telstra certainly does have the wherewithal to handle quite an aggressive price war but that would hurt their margins.”
The infrastructure needed to support soaring data demands due to Australians’ love of smartphones, tablets, streaming and gaming is hugely costly.
Companies are trying to team up and capture market share, driving down costs through scale.
“The smaller players don’t have the infrastructure. It’s in their interest to merge with companies such as Vocus who do have that infrastructure,” Morningstar analyst Farina Parsons said.
“It’s becoming a market dominated by a few players and, if you’re a small player, you really can’t compete. Major operators like M2, Amcom, iiNet are gone.”
That is good news for the survivors and consumers wanting high speed, but it raises pricing concerns.
The ACCC waved through the TPG-iiNet deal but chairman Rod Sims has indicated future mergers might raise alarms, especially if they involve two of the now big four suppliers of fixed broadband.
“We took comfort that TPG would continue to face three major competitors after the acquisition (of iiNet),” Mr Sims said.
“Clearly, we would have no such comfort in the case of any subsequent proposed acquisition involving any two of Telstra, Optus, TPG or M2.”
Consumer rights group Australian Communications Consumer Action Network said the TPG-Vodafone partnership appeared to offer more options to consumers, but it is too early to speculate on the long-term effects.
Neither TPG’s enterprise and wholesale senior manager Mark Rafferty nor Vodafone Australia chief executive Inaki Berroeta would be drawn on whether their companies are considering a full-on merger, but IG’s Mr Nicholson said it is “certainly the sort of thing (TPG executive chairman) David Teoh would consider”.
A merger didn’t sound unlikely, as Mr Berroeta praised TPG while announcing the latest link-up.
“The way the teams have been working together has been extremely successful. We really trust them,” he said.