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CEPA’s advice provided to Australian communications provider Optus last year, highlighting the adverse impacts of a merger transaction between its two competitors, has been supported by the Australian Competition Tribunal in its Determination published this week. Following CEPA’s commission to assess the competition impacts of an application for merger authorisation between Telstra Corporation Limited (Telstra) and TPG Telecom Limited (TPG), the Tribunal has upheld the decision of the Australian Competition and Consumer Commission (ACCC) to deny authorising the deal.

The application for authorisation by Telstra and TPG was opposed by CEPA’s client (Optus) on the grounds that the conduct sought to be authorised, and the proposed transaction as a whole, would be likely to substantially lessen competition in the Australian market for mobile telecommunications services and related markets, principally by increasing Telstra’s market power and damaging Optus’s competitive position in those markets, and that any resulting public benefits would not outweigh the anti-competitive detriment.

On consideration, the Tribunal decided that: “the Spectrum Authorisation Agreement would not materially affect TPG’s competitive position in the mobile telecommunications market. In contrast, the Tribunal considers that the Spectrum Authorisation Agreement provides Telstra with substantial commercial and competitive benefits and would further increase Telstra’s position of market strength in mobile telecommunications markets at both the retail and wholesale levels”. However, it went on to say: “The Tribunal considers that the benefits that Telstra would obtain from the additional spectrum under the Spectrum Authorisation Agreement in the Regional Coverage Zone and beyond would be likely to have a material effect on its competitive position vis a vis Optus and would undermine Optus’s incentives to invest in a 5G network in the 80%+ population coverage area. Over time, the network quality gap between Telstra’s network and Optus’s network would be likely to increase. As a consequence, the competitive constraint that Optus currently imposes on Telstra would be likely to weaken, which would enable Telstra to maintain higher prices and margins than would otherwise be the case. The reduction in competitive constraint would also reduce the pressure that Telstra faces to invest in and upgrade its network. As such, the lessening of competitive constraints is likely to lead to a reduction in economic efficiency to the detriment of Australian consumers.”

It concluded that: “In the Tribunal’s view, the productive efficiency gains from Telstra’s access to additional spectrum under the Spectrum Authorisation Agreement are outweighed by the public detriment associated with the lessening of competition that is likely to result from that conduct. Accordingly, the Tribunal is not satisfied that Telstra’s use of TPG’s spectrum licences would not be likely to substantially lessen competition, or would be likely to result in a benefit to the public that would outweigh the public detriment from that use.”

CEPA’s project team was led by the global telecoms market expert, Dr. Chris Doyle, working closely with the Managing Partner of CEPA Australia, Dr. Jonathan Mirrlees-Black, a pre-eminent infrastructure advisor to regulated companies, investors, governments, competition authorities, and regulators.