Vodafone and TPG are merging: What will it mean for you?

Alex Kidman 30 August 2018 NEWS

Vodafone and TPG are going to merge, but what will the combined telco bring to Australian consumers?

TPG and Vodafone have announced their intention to merge into a single telecommunications company today, detailing what its plans are as a result at the merger.

Speaking to media, Vodafone Hutchison Australia CEO Iñaki Berroeta described it as a "A match made in heaven", noting that the combination of brands would make it a "significant challenger brand" in the Australian telco space.

The combined company will formally be known as TPG Telecom Limited, with TPG shareholders owning 49.9% and Vodafone Hutchison Australia shareholders owning 51.1%. The expectation is that the merger will be fully implemented next year, pending shareholder and regulatory approval.

I'm a Vodafone or TPG customer right now. What will it mean for me?

TPG and Vodafone have only just started the merger process. While there are certain binding parts of the merger proposal, right now, there's no announced plans to change existing offers in either the mobile or broadband space.

In a statement, Ben McIntosh, Vodafone Australia chief commercial officer said, "We’re very excited about the future, but for the moment, nothing changes for our customers. They can continue to enjoy all the things they love about us including $5 Roaming, no lock-in handset contracts, 35-day prepaid expiry, and NBN Instant Connect and 4G Backup."

It's what happens once the merger is finalised that could have significant impact on your usage of either TPG or Vodafone services.

What happens to TPG's cheaper unlimited plans?

TPG had announced intentions to trial its new mobile network with unlimited plans at a price of $9.99 per month, way lower than anyone (including Vodafone) is offering right now.

But it would appear that those plans are unlikely to become available.

During the media call to announce the deal, TPG chair David Teoh danced around questions of what would happen to the $9.99 plan, before stating that he saw more potential in offering bundles of mobile and broadband services.

On the direct question of the $9.99 unlimited deal previously suggested he said, "Who knows? It could be much better. We have close to 2 million fixed broadband customers. So the prospective customer base is enormous, so when you bundle with mobile, it could be even better."

That's not an outright no, but the fact that he wouldn't state that the merged entity explicitly would go ahead with that $9.99 plan makes it doubtful at best.

What happens with 5G?

Amongst the big three telcos, Vodafone has been the quietest when it comes to openly talking about its 5G ambitions, seemingly happy to let Telstra and Optus bicker about who's going to launch 5G "first" in Australia.

The inevitable scenario there is that we'll see fixed-line-broadband replacement 5G in Australian metro areas in early 2019, some time before the first 5G handsets arrive at all.

TPG has significant spectrum holdings in its own right that cover both 4G and 5G implementations, as well as an expensive commitment to licensing that spectrum through to at least December 2028. Vodafone has for years struggled with the perception that it's the least available player in the local market, although adding TPG's spectrum doesn't automatically give it wider Australian coverage.

When TPG announced its own mobile network plans, it stated that its intention was to cover around 80% of the Australian population. That's well below the 96% coverage Vodafone claims, and it's clear from its trial plans that TPG has not been looking to push coverage as part of its wider strategy.

TPG's David Teoh stated that his intention was to deliver better services to existing TPG customers in the areas where they live. "If you look at our rollout footprint, we cover very dense areas where our customers are," he said. "That will compliment the VHA network, because we need high capacity in that area. The performance from our small cell network, when you add the 2 together that will create better service for customers."

The practical upshot there is that Vodafone (and TPG Mobile) customers in metro areas might see a significant uptick in their network performance, but the combined network might still struggle in more remote areas.

One area that the two companies have committed to irrespective of whether or not the merger goes ahead is in bidding for 3.6Ghz spectrum through a joint venture to bid collectively for that spectrum, as well as exploring possibilities for sharing of existing network assets.

While that's more of interest to the financial pages, it could mean that the newly formed TPG Telecom Limited could end up with significant coverage assets for consumers to access.

What happens to the brands?

Vodafone is an internationally recognised brand, but in merging with TPG it would gain more than just the TPG brand. It would also instantly be running iiNet, Internode, AAPT, PIPE Networks, Chariot, Soul, IntraPower, RuralNet, TransACT and many more.

The combined entity would no doubt prefer to keep all those customers in order to cement its place in the Australian marketplace, but balancing all those differing plans, price points and customer service expectations could well be a difficult task.

Vodafone's Iñaki Berroeta did state that "We plan to create a multi-brand company. There are no plans to change any of our existing brands", but that does leave open what happens to the mobile offerings currently available through TPG sub-brands such as iiNet and Internode.

iiNet and Internode currently provide services on the Optus 4G network, but it's not known how long they'd be tied to those arrangements. It seems likely in the near future that any customers would see their network switch over to the new combined TPG/Vodafone network.

Vodafone's broadband goes a lot wider

Vodafone has played it very slow and steady with its Vodafone NBN rollout as it extends across the country, but this is an area where TPG is very much already present and operating a wide variety of fast broadband services.

Vodafone is notable in making its own 4G-fallback modem a mandatory part of its NBN packages, while TPG has (mostly) sold itself as a super-affordable, relatively no-frills service.

In the combined proposal document for shareholders, TPG and Vodafone make it rather more explicit quite where each company stands to gain. Vodafone's market share for broadband isn't stated at all – almost certainly due to the small scale of its NBN offerings – while TPG is claiming 22% of the fixed broadband market. Conversely, TPG would go from around 1% of the mobile market to a combined 20% with the new entity, thanks to Vodafone's 19% mobile market share.

Vodafone also recently switched its NBN strategy around to no-commitment month to month plans, where TPG sits in the more traditional contract space.

There's little doubt that (presuming the merger goes ahead) that plans would stay as they are for simple contractual compliance reasons for a time. At some point the combined company would need to settle on a single strategy to avoid falling into the kind of complex-too-many-plans hole that Telstra is currently digging itself out of as part of its Telstra 2022 strategy.

The combined entity would also have to deal with Kogan NBN's deal with Vodafone, which sees it as the exclusive provider of NBN services to the budget brand for the next few years, again providing both a revenue source but also potential customer competition to deal with.

Will the ACCC let it happen?

All of this presumes that the ACCC actually approves any eventual merger plan. A combined TPG/Vodafone may worry the ACCC, given that it would significantly reduce market competition, especially given TPG's stated aim to launch its own mobile network in Australia.

Merging the two entities would keep the status quo at only three competing networks. Vodafone does have MVNO partners, but not a significant number of them compared to Telstra or especially Optus.

Where Vodafone would gain significantly would be in the broadband space, adding TPG's reported 1.92 million customers to its books, while on the TPG side, its roughly half-million mobile customers would join Vodafone's 5.98 million mobile subscribers. The proposed company is being pitched as a "challenger telco" to Optus and Vodafone, according to VHA's Berroeta, and that may well meet the ACCC's requirements.

Berroeta is confident that the deal should pass ACCC scrutiny. "We will work closely with the ACCC," he said. "We believe that there is a compelling case that this merger delivers strong competition for Australian consumers."

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