ACCC questions Hutchison, Vodafone merger

Potential for increased mobile telephony, mobile broadband costs

The ACCC has warned that the proposed merger between Hutchison and Vodafone, announced on February 9th, could lead to increased prices for mobile telephony and mobile broadband (MBB).

In a Statement of Issues on the proposed merger released yesterday, the ACCC said that in its preliminary view, competition in the short to medium term within the mobile telephony and MBB segments was in question.

“The ACCC is concerned that the removal of Hutchison as a vigorous and effective competitor will lead to increased prices for customers in the retail mobile telephony and MBB services segments in the retail mobile telecommunications services market,” the ACCC said in the Statement of Issues.

As Hutchison and Vodafone were each other’s closest competitors, the proposed merger could increase the potential for Vodafone to exercise unilateral market power, the ACCC said.

“The ACCC notes the proposed merger would result in increased concentration from four to three Mobile network operators (MNOs) in a market which is already highly concentrated, and, that the prospect for a new MNO entrant of the scale and scope necessary to provide a competitive constrain on existing MNOs is practically non-existent,” the regulator said.

Mobile virtual network operators (MVNOs) and resellers are unlikely to constrain the merged entity, particularly as they rely on wholesale acquisition of mobile services from MNOS, the Statement of Issues said.

Telecommunications analyst Paul Budde said the ACCC’s concerns were correct, but added there was an argument in favour of the merger that having three stronger competitors was a more effective competition regime than two stronger and two weaker ones.

“However, by moving from four competitors to three there is more room for collusion and not competing against each other too fiercely,” he said.

If the European telecommunications experience was anything to go by, Budde said, the ACCC would have difficulty in regulating issues of collusion if the Vodafone and Hutchison merger was approved.

“It may feels like collusion, look like collusion, smell like collusion, so it most probably is collusion, yet it is damn hard to regulate,” he said.

“The EU has had this issue for nearly a decade, but despite regulators identifying misbehaviour, they have been unsuccessful it prosecuting it in court.”

Budde added that if the merger were to go ahead, the ACCC should also look at forcing a separation between the mobile infrastructure and services, similar to that proposed for fixed line networks.

“In this way the ACCC could make it easier for other companies, such as mobile virtual network operators (MVNOs) to operate on top of the network," he said. “It would be much more difficult for the three operators to collude in try to keep margins as high as possible.”

Submissions to the ACCC on the merger can be sent to: mergers@accc.gov.au.

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