Australia Prohibits Telstra-TPG Wireless Broadband Merger, Triggering A Lawsuit

Australia's antitrust authority halted an asset transfer transaction between Telstra (OTC:TLSYY) and TPG, the country's largest and third-largest wireless internet providers, citing competition concerns, laying the stage for a judicial battle over access to four million consumers.

In a February-announced arrangement, Telstra Group was to acquire wireless internet-carrying spectrum and transmission towers from TPG Telecom Ltd, but TPG would continue to sell 4G and 5G service using what would become Telstra's infrastructure. They did not provide financial information.

However, Optus, the No. 2 wireless internet provider and a subsidiary of Singapore Telecommunications, rejected the acquisition on the grounds that it would increase Telstra's market domination.

Wednesday, the Australian Competition and Consumer Commission (ACCC) voted against the proposal, citing the possibility that TPG and Optus will invest less in vital infrastructure.

Telstra and TPG stated that they will appeal the ACCC's decision, which they described as disappointing and a missed opportunity for the 17 percent of Australia's 25 million-person population that would be affected by the merger.

The judgment sets up TPG and the ACCC for their second court confrontation in less than two years. The ACCC banned TPG's acquisition of CK Hutchison Holdings Ltd's Vodafone (NASDAQ:VOD) Hutchison Australia, but the Federal Court overruled it in 2020 and allowed the deal to proceed.

It represents a bright point for Optus, which faced severe criticism, notably from the federal government, after disclosing in October a data breach affecting around 10 million customer accounts.

"By rejecting this acquisition, the ACCC has helped ensure that our regional areas will continue to benefit from competition," stated Kelly Bayer Rosmarin, chief executive officer of Optus (OTC:BAYRY).

Shares of Telstra, which already has the most users in most of Australia's major internet and telecommunications markets, were flat at midday on Wednesday, while shares of TPG were down 3%, compared to the market's 1.3% rise.

UBS analysts noted in a client note about TPG, "An failed appeal to the Australian Competition Tribunal might have a longer-term... impact on our EBITDA expectations, discounting the impact from possible further expenditure required to enhance regional networks."

Paul Budde, an independent observer of telecommunications, stated that the ACCC's focus on infrastructure ownership rather than services demonstrated that Australian competition legislation was out of sync with practical reality.

"You could argue that the ACCC has failed to move in that direction, or that the sector should have advocated for a comprehensive review of telecoms regulation," he wrote in an email.

"The industry and the ACCC will need to sit down and devise a new regulatory regime that accounts for reality," he continued.