News out this morning that TPG is in talks with Vodafone Hutchinson Australia to merge the companies which has seen a fuse lit under the Telcos today. TPG has not been quiet about plans to enter the Australian mobile sector with most forming the view that they would build their own network – which it had already started doing – but these merger talks take the strategy down a different route. Although in the very early stages of ‘exploratory non-binding discussions,” the deal makes a lot of sense. Vodafone only recently started to operate broadband services while TPG purchased its first bandwidth last year – both moving into each other’s prime markets.
The telco’s have caught a bid on the back of these development for two reasons. Firstly consolidation in the sector is now on in a big way and it is likely other companies will be running the ruler through both competitors and complimentary businesses. Secondly a merged TPG/Vodafone would be less aggressive on pricing than a standalone TPG offering – chairman David Teoh had been very vocal about his aggressive pricing plans.
A quick rundown:
TPG (ASX:TPM) currently $7.45 / +18.44%
Hutchinson Telecommunications (ASX:HTA) – owns 50% of Vodafone Hutchinson Australia – currently $0.10 / +66.67%
Telstra (ASX:TLS) – currently $3.245 / 6.39%
Vocus Group (ASX:VOC) – currently $2.745 / +7.23%
TPM (TPG) Chart
Market Matters Take/Outlook
The merger talks bring some relief for Telstra’s mobile network that has clearly been threatened by competition. Our view is that this deal has a high chance of being completed solely on the nature of the two companies and this is just the start of some relief for all players in the Australian mobile market that has been highly competitive for some time.
