Australia blocks Telstra-TPG wireless internet deal, sparking legal battle

SYDNEY, Dec 21 (Reuters) – Australia’s antitrust authority blocked an asset transfer deal between Telstra and TPG, the country’s No. 1 and No. 2 wireless internet companies, citing competition concerns and setting the stage for a lawsuit over the Access to four million customers.

In a deal announced in May, Telstra Group (TLS.AX) was to buy spectrum — airwaves that carry wireless internet — and cell towers from TPG Telecom Ltd (TPG.AX), while TPG would continue to sell 4G and 5G coverage Telstra infrastructure. They did not give any financial details.

But No.3 wireless operator Optus, owned by Singapore Telecommunications (STEL.SI), rejected the deal, saying it would build Telstra’s market dominance.

Australia’s Competition and Consumer Commission (ACCC) ruled against the plan on Wednesday, saying it would “entail a real risk that TPG and Optus would underinvest in critical infrastructure.”

Telstra and TPG said they will appeal the ACCC’s decision, which they described as disappointing and a missed opportunity for the 17% of Australia’s 25 million people who would be affected by the merger.

The decision ushers in a second legal showdown between TPG and the ACCC in just over two years. The ACCC blocked a TPG acquisition of Vodafone Hutchison Australia from CK Hutchison Holdings Ltd (0001.HK) only for the federal court to overrule and allow the transaction to proceed in 2020.

This is a bright spot for Optus, which has faced heavy criticism, including from the federal government, after it reported a data breach in October that affected around 10 million customer accounts.

“By striking back this deal, the ACCC has helped our regional communities continue to benefit from competition,” Optus CEO Kelly Bayer Rosemary said in a statement.

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Shares in Telstra, which already has the most customers in most of Australia’s major internet and telecoms markets, were flat, while shares in TPG were down 3% through mid-Wednesday session, while the broader market (.AXJO ).

“An unsuccessful appeal to the Australian Competition Court could have longer-term … implications for our EBITDA projections, excluding the impact of potential additional investments required to upgrade regional networks,” UBS analysts wrote in a note to clients about TPG.

Paul Budde, an independent telecoms analyst, said the ACCC decision shows that Australia’s competition regulation is not keeping pace with commercial reality, as it focuses on ownership of infrastructure rather than services.

“You could say that the ACCC has failed to move in that direction, or you can argue that the industry should have pushed for a general overhaul of telecoms regulation,” he said in an email.

“Industry and the ACCC need to come together and come up with a new regulatory regime that takes reality into account,” he added.

Reporting by Navya Mittal and Savyata Mishra in Bengaluru; Edited by Anil D’Silva, Shinjini Ganguli, Uttaresh.V and Muralikumar Anantharaman

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