There have been mixed reaction following a proposed “merger of equals” between Vodafone Hutchison Australia and TPG Telecom, currently Australia’s number-three and number-four telecommunications firms.

The new entity promises to challenge market behemoth Telstra, forming a multi-channel market giant with 20 percent of Australia’s mobile market and 22 percent of its fixed-line business.

Vodafone Hutchison Australia will take a 50.1 percent stake in the combined company, which will be listed on the ASX as TPG Telecom Limited once the merger is complete.

The new company is expected to aggressively pursue 5G mobile spectrum once it becomes available.

The Australian Competition and Consumer Commission (ACCC) said in a statement that it will “soon commence a public review” over 12 weeks and will be calling for submissions on the proposed $15b merger.

Its review will examine the competitive impact on mobile services and fixed-line broadband services if the companies were to merge.

Analysts have welcomed the deal as “a brilliant move” by TPG founder David Teoh, who has long been fighting a tactical and legal war against the National Broadband Network (NBN) rollout that included a race to be first to deploy fibre-to-the-basement (FttB) services in apartment blocks across Australia’s capital cities.

Mobile play meets NBN play

A longtime mobile virtual network operator (MVNO) reselling Vodafone’s mobile services, TPG has moved aggressively to build its mobile business and last year spent $1.2b to buy some of the last of the ‘digital dividend’ 700MHz mobile spectrum that will allow it to build a $600m network covering 80 percent of the nation.

The company has said it needs around 500,000 mobile customers to break even on the investment, and recently claimed that it had reached the 400,000 mark.

Tough margins and intense competition – heightened by an aggressive TPG pricing strategy that included a six-month free introductory offer and unlimited data plan for $9.99 per month – have challenged the market this year.

Rival Optus, for one, has moved to wind down discount MVNO Virgin Mobile over the next two years.

Meanwhile, Vodafone has long toyed with the idea of building out a fixed-broadband business, and last year launched a fixed broadband service via the NBN – a “natural progression” that CEO Iñaki Berroeta said would “allow us to deliver more data to our customers.”

TPG brings to the merger a base of some 1.9 million fixed line customers, which will complement Vodafone’s 6 million mobile subscribers to create a $15b fixed-and-mobile operator with annual revenues of $6b that would rival market number-two Optus.

Optus has 6.3m 4G mobile customers and 453,000 NBN broadband customers, and reported combined mobile and fixed line revenues of $1.3b in the final quarter of fiscal 2018.

Both companies will still lag Telstra, which reported having 17.7m mobile customers and mobile revenues of $10.1b – as well as fixed revenue of $5.8b – in its most recent annual results.

Industry enthusiasm, competitor concern

Investors and analysts have welcomed the move, with TPG shares rising nearly 10 percent in early trade and Watermark Funds Management principal Justin Braitling, for one, telling the Sydney Morning Herald that the move makes “imminent sense.”

Earlier this year, industry figurehead Bevan Slattery told an industry conference that TPG’s “clear” vision would make it Australia’s number-two telco within five years.

Telecommunications industry analyst Paul Budde wrote that the merger showed that “business sense has prevailed,” producing a deal that was “a very rational decision” in a market that “has long been dominated by egos… that has made it difficult sometimes to make rational business decisions.”

The impact of that had been seen in the disaster for Vodafone, Budde added, when underestimating the rising demand for mobile data led the company’s network to collapse in a spectacular fashion.

“It took them years to get on top of this,” he said.

“In the process they lost over a third of their customers.”

According to Budde, an older and wiser Vodafone has marketed its revamped network to heavy data users, and leveraging this network will both cost-effectively bootstrap TPG into the mobile game and help Vodafone finally realise its fixed-line ambitions.

Budde warned about potential conflicts between the companies’ very different branding and marketing, but branding is a distant concern given the extensive regulatory review and concerns that market consolidation will threaten competition and opportunities for MVNOs.

Boost Mobile founder Peter Adderton, for one, told iTWire that the merger could be devastating for competition and said the ACCC should reject the deal if it doesn’t include protections for MVNOs that leverage the dominant networks and compete aggressively on price.

MVNOs “are the ones that lose in the scenario as we don’t have the scale to compete with these bigger companies,” Adderton said, challenging Berroeta to commit to TPG’s $9.95 unlimited-data promise.

“My guess is that [Berroeta and Teoh] might get a case of amnesia on that one,” he said.