Australia blocks Telstra-TPG wireless internet deal, sparking legal fight By Reuters

© Reuters. FILE PHOTO: A man looks at his phone as he walks past a Telstra logo adorning a telephone booth in the central business district (CBD) of Sydney, Australia, February 13, 2018. REUTERS/David Gray

By Byron Kaye

SYDNEY (Reuters) – Australia’s antitrust regulator has blocked an asset transfer deal between Telstra ( OTC: ) and TPG, the country’s No.1 and No.2 wireless internet firms, citing competition concerns, setting the stage for a legal battle over access to four million customers.

In a deal announced in May, Telstra Group would buy spectrum – airwaves that carry wireless internet – and transmission towers from TPG Telecom Ltd, while TPG would continue to sell 4G and 5G coverage through what would become Telstra’s infrastructure. They did not provide financial details.

But No. 3 wireless internet provider Optus, owned by Singapore Telecommunications, opposed the deal, saying it would build Telstra’s market dominance.

The Australian Competition and Consumer Commission (ACCC) ruled against the plan on Wednesday, saying it would “pose a real risk that TPG and Optus will underinvest in critical infrastructure”.

Telstra and TPG said they would appeal the ACCC’s decision, which they called disappointing and a missed opportunity for the 17% of Australia’s 25 million population who would be affected by the ruling.

The decision sets up a second legal showdown between TPG and the ACCC in just over two years. The ACCC blocked a buyout by TPG of CK Hutchison Holdings Ltd’s Vodafone (NASDAQ: ) Hutchison Australia, only for the Federal Court to overrule it and allow the deal to go ahead in 2020.

It’s a bright spot for Optus, which faced intense criticism, including from the federal government, after it reported a data breach affecting about 10 million customer accounts in October.

“By striking back this deal, the ACCC has helped ensure that our regional communities will continue to benefit from competition,” Optus CEO Kelly Bayer (OTC:) Rosmarin said in a statement.

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% by mid-session on Wednesday, compared with a 1.3% gain on the broader market.

“An unsuccessful appeal to the Australian Competition Tribunal could see a longer-term … impact on our EBITDA forecasts, excluding impact from potentially incremental investment required to upgrade regional networks,” UBS analysts said in a client note on TPG writing.

Paul Budde, an independent telecoms analyst, said the ACCC decision showed Australian competition regulation was out of step with commercial reality by focusing on infrastructure ownership, not services.

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

“The industry and the ACCC will have to sit down and work out a new regulatory system that takes reality into account,” he added.