TPG Telecom and Vodafone Hutchison Australia (VHA) have announced a merger worth $15 billion, which both companies say will create a more effective challenger to the major incumbents, Telstra and Optus.
The name of the newly merged entity will be TPG Telecom limited despite Vodafone shareholders owning the majority stake of 50.1 per cent and TPG shareholders holding the remaining 49.9 per cent.
Yesterday’s official announcement came a week after the telcos confirmed they had held “exploratory discussions” to create “a merger of equals.”
TPG says themselves and VHA own and operate highly complementary telecommunications network infrastructure, including more than 27,000km of metropolitan and inter-capital fibre networks, a leading mobile network with over 5,000 sites, international transit capacity and a strategic portfolio of spectrum assets.
The telco says these assets will position the combined company to invest in 5G technologies that will deliver faster services and offer more competitive value propositions to more Australian customers.
David Teoh, TPG chairman says this merger, which is still subject to approval from the ACCC, represents an exciting step-change in TPG’s evolution benefiting both shareholders and Australian customers alike.
“Together, TPG and VHA will have a comprehensive portfolio of fixed and mobile products, and will own the infrastructure required to deliver faster services and more competitive value propositions to Australian customers. With this merger, we will be a more formidable competitor against Telstra and Optus.”
Iñaki Berroeta, CEO at VHA says, “The Australian telecommunications market is characterised by the presence of Telstra and Optus. Together, TPG and VHA will provide stronger competition in the market and greater choice for Australian consumers and enterprises across fixed broadband and mobile.
“The combination of our two highly complementary businesses and talented employees will create a more sustainable company, with enhanced capacity to invest in new technology and innovation. We are confident that this merger will be highly beneficial to customers, shareholders and other stakeholders.”
TPG has a 50 per cent interest in VHA, which has a customer base of 6 million subscribers. TPG has more than 1.9 million subscribers with what the company says is a corporate, government and wholesale business.
Teoh will become the chairman of the merged group with Berroeta becoming the managing director and CEO of the merged group.
Foad Fadaghi, managing director at Telsyte says once the dust has settled from the merger we might see a TPG that is less willing to sacrifice margin for subscriber growth, which consequently will put less pressure on Optus, Telstra and the industry as a whole.
He says, “It will be interesting to see the impact of the merger on all of TPGs operating brands and the influence that Vodafone – the largest global carrier – has on its marketing going forward. It’s fair to say that it’s a merging of industry or financial equals, but not necessarily the merging of equal brands.”
The announcement of the merger TPG shares were up 10.2 per cent to $8.69. Currently, TPG shares are at $9.30.
Update 3/9/2018: Siow Meng Soh technology analyst at GlobalData said this merger is a win-win for both companies, “As a single provider, they will have greater economies of scale and bargaining power with suppliers.
“TPG will get instant access to a nationwide mobile network to offer customers competitive fixed-mobile bundled services. VHA gets access to enterprise accounts, exposure to more SMBs and a solid fixed network infrastructure (better margin than buying wholesale NBN services).
“With the 5G spectrum auction around the corner, TPG will need to inject more cash to obtain 3.6GHz spectrum while it does not yet have paying customers on its mobile network. Moreover, joining forces with VHA gives TPG greater bargaining power with a smaller number of 5G equipment suppliers; after the ban on Huawei and ZTE to supply 5G by the Australian federal government.”