ACCC releases VHA merger justification

The Australian Competition and Consumer Commission has released its public competition assessment of the Vodafone/Hutchison merger after approving the deal a month ago.

Despite being innovators and vigorous competitors, the ACCC believed Hutchison and Vodafone's services would have degraded over time, lessening their effectiveness as competitors to Telstra and Optus.

The competition watchdog allowed the merger to proceed under Section 50 of the Trade Practices Act, which prohibits a merger if it's likely to lead to a lessening of competition in the foreseeable future. The report focused on mobile telephony and mobile broadband markets.

The report reveals why the ACCC appeared not to support the merger when it said in April the merger would likely lead to higher prices for such services, but ultimately back-flipped when it approved the deal last month.

Vodafone and Hutchison were "vigorous competitors" in each market, forcing lower pricing from Telstra and Optus, but still the ACCC said their absence as individual players would unlikely lead to a lessening of competition in the foreseeable future. Key to its finding was the view that constraints on Hutchison's and Vodafone's network capacity, resulting from a failure to expand existing networks, would ultimately lessen their effectiveness as competitors.

"Without this network expansion, Hutchison would suffer a significant competitive disadvantage — in particular, the speed of its [mobile broadband] and other data services would slow down and the quality of its voice services would degrade," it reported.

"It is highly unlikely that Vodafone would have continued to make the investments necessary to remain competitive in MBB across Australia in the absence of the merger," the regulator said of Vodafone.

The ACCC acknowledged in its report that the merger would lead to a significant increase in concentration in the already concentrated markets. It also noted that Telstra and Optus may behave more competitively during the integration period of the newly merged entity VHA faces, but it said this would likely be short-lived.