Case study | 19 February 2020

TPG - Vodafone | Merger & price rise evaluation

View our case study on how we provided an expert opinion for the TPG - Vodafone Merger case, and a post-merger analysis on prices.

What was the challenge?

The ACCC declined to informally clear the proposed merger between TPG Telecom (ASX: TPM) and Vodafone Hutchison Australia (ASX: HTA) merger in 2020. The ACCC considered that the proposed merger between TPG and Vodafone would reduce competition and contestability in the retail mobile telecommunications market.

Vodafone instituted proceedings in the Federal Court to seek a declaration that the merger would not be anti-competitive, and the case was heard over three weeks from 10 September 2019. Frontier Economics’ Professor Stephen Gray and Warwick Davis provided expert reports to the Federal Court on the ACCC’s proposed no-merger counterfactual.

Following the Federal Court’s approval of the merger and the ACCC’s subsequent claims that the merger had caused price rises, we analysed price changes for retail mobile services in Australia and found little support for those claims.

How did we complete the economic modelling and analysis?

During the case, Professor Gray gave evidence about the prospects of a stand-alone TPG being able to raise sufficient capital to build out a stand-alone 5G mobile phone network. The court accepted and relied on Professor Gray’s evidence. Paragraphs from the judgement include:

Professor Gray assessed the factual substratum that would inform the decision by investors as to whether to support the capital raising. He concluded that it was highly unlikely that a capital raising could be executed, even with the participation of Mr Teoh and WHSP, because any future raising would likely have to be at a greater discount than the 20% discount required in April 2017 because of the effect on market perception of TPG created by the failure of its first roll-out and the deterioration in its financial performance since that time. I accept this assessment.

READ THE ACCC PRESS RELEASE

Following the merger, we also analysed price changes and financial data and developed a hedonic pricing model that adjusted for changes in plan quality (through increased data allowances) to critically assess the ACCC’s claims that the merger between TPG Telecom and Vodafone had caused price rises for retail mobile services in Australia.

What were the results?

Our analysis concluded that consumers had not experienced price rises since the time of the merger, and that once corrections were made for actual prices paid (including discounts) and quality increases, it was clear that consumers are better off than they were at the time of the merger (2021-22).