The TPG Telecom Ltd (ASX: TPG) share price is down after its regional agreement with Telstra Group Ltd (ASX: TLS) was blocked by the ACCC.
TPG and Telstra wanted to share their regional assets so they each could offer a better service to customers.
TPG-Telstra authorisation blocked
The Australian Competition and Consumer Commission (ACCC) said that it wasn’t satisfied the proposed arrangements would not be likely to substantially lessen competition, or that the likely public benefits from the arrangements would outweigh the likely public detriments.
After an extensive public consultation and investigation process, the ACCC wasn’t satisfied with either of those tests.
The ACCC concluded that a negative impact on coverage, network quality and innovation was likely. It also said that it would entrench Telstra’s dominant position in the mobile market. But, Telstra’s dominant position is helpful for the Telstra share price.
ACCC Commissioner Liza Carver said:
Mobile networks are of critical importance to many aspects of our lives, including our livelihood, our wellbeing and our ability to keep in touch with friends and family. Any reduction in competition will have very wide-ranging impacts on customers, including higher prices and reduced quality and coverage.
Mobile network operators compete on price and a user’s package inclusions, but importantly, they also compete on coverage, speed and other quality dimensions that are directly influenced by the nature and extent of their underlying network infrastructure.
Entering into the arrangements proposed by Telstra and TPG will represent a significant change to the structure of the market that would have long-term consequences.
The ACCC also explained that there was a real risk that TPG and Optus would invest less in critical infrastructure than they would if the proposed arrangements do not proceed.
Final thoughts on the Telstra share price
This is a disappointing result, particularly for TPG. It has reduced its ability to offer customers a compelling regional product. For Telstra, it won’t get to generate more earnings from its regional assets.
Telstra and TPG will try to get this decision overturned in the courts, so it’s not over yet. But, just like the merger deal between TPG and Vodafone Australia, this is another delay (at best) that the ASX-listed TPG didn’t need.
Out of the two, I think the Telstra share price is a better long-term buy than TPG because of its profit outlook and diversification.
