The competition regulator's lawyers failed dramatically to make any impression on Federal Court judge John Middleton in their effort to prevent the $15 billion merger of TPG and Vodafone, new court documents reveal.
In his full 300-page judgment, released for the first time on Wednesday, Justice Middleton concluded the merger would improve competition on almost every front, a diametrically opposite view to that reached by the Australian Competition and Consumer Commission.
Justice Middleton gave TPG boss David Teoh's testimony a glowing review. Asanka Ratnayake/Getty Images
The ACCC had claimed that if the merger was not allowed to proceed, there was a "real chance" that TPG would revive its abandoned mobile network. The merger would therefore lead to a "substantial lessening of competition".
Justice Middleton rejected this claim, concluding that the merged company would be better able to compete with incumbents Telstra and Optus, including through the roll-out of a third 5G network. The judgement was also a major vindication of TPG boss David Teoh, whose apparently ad hoc management style came under scrutiny from the regulator's barristers.
"MergeCo’s ability to invest additional capex in its network will enable it to offer high-quality 5G services to customers far sooner than Vodafone or TPG would be able to alone. In doing so, MergeCo will have the opportunity to become a more effective competitive constraint on Telstra and Optus," Justice Middleton said.
He said the merged company would "have the ability and incentive to compete on price, coverage, quality, network investment, fixed and mobile bundled products and integrated ‘whole of business’ solutions, and use its multiple brands to appeal to and target particular segments". It would also be able to compete in "low end, high end and enterprise/government segments", he said.
"I am left in no doubt that a combination of those factors will increase the competitiveness of MergeCo relative to a standalone Vodafone and TPG," he said.
Evidence given by the ACCC's key expert witness, former head of network for Telstra Mike Wright, went against the regulator, serving to support the view that TPG could not have built a competitive mobile network outside a merger with Vodafone.
"On Mr Wright’s calculations, the capacity of the TPG Original Network would have been exhausted before the end of the 2019 financial year, and the capacity deficiency increased at an alarming rate thereafter," Justice Middleton said.
"Even as TPG added more base stations, capacity would have continued to have been exceeded. Adding 5G to this network design would not have made any significant or material improvement to this outcome," he wrote.
Mr Teoh's day in the box back in September generated the most media attention, with reports focusing on Mr Teoh's apparent disregard for financial modelling and record-keeping. The ACCC had used this as evidence that Mr Teoh had decided he would build a mobile network at any cost, and would continue to take that attitude.
But Justice Middleton was not convinced, giving Mr Teoh's performance in the box a glowing review and dismissing any notion that he was "foolhardy" or indifferent to financial reality.
"I do not take the absence of written records to be indicative of any lack of rigour or analysis on TPG’s part," he said.
As at April 2017, Mr Teoh was confident in the business plan he had adopted and progressed. He said he thought that TPG had a ‘good business case’ for spending $1.261 billion on the 700 MHz spectrum. I accept this was his view.
"Further, as I have said, I do not assume that TPG – and its investors – would blindly replicate previous decisions, oblivious to changes in the market since, and the lessons of its attempt to roll-out a network."
Vodafone chief executive Iñaki Berroeta, who will take the CEO role in the merged company, said the full judgment demonstrated the court’s "emphatic" ruling.
“The court is very clear that this merger will increase competition by allowing us to be a stronger player that will bring more choice and value for Australian consumers and businesses,” he said.
“Having said that, we respect the role of the ACCC and the courts, we are reviewing the full judgment, and are currently awaiting the end of the appeal period. We’ll continue to keep our customers and the market informed as we look to progress our plans.”
The ACCC has until next Thursday to lodge a appeal. If it does not do so, Vodafone expects the merger to go through in the middle of the year.
