Opinion
Closing the gap: Vodafone’s desperate deal to catch Telstra and Optus
Elizabeth Knight
Business columnistThere are two ways to look at the biggest telco deal in town, the proposed sale of TPG’s infrastructure business to Macquarie-backed Vocus. It could either be seen as TPG’s capitulation of its unsuccessful empire building strategy, or as yet another attempt to close the gap between its mobiles business Vodafone and the number two telco player, Optus.
This deal probably does both, but at first glance it certainly feels like TPG’s lofty growth ambitions have given way to the practical necessity that the company needs cash, and selling a large part of the business – enterprise, government and wholesale infrastructure assets – for $6.3 billion solves that problem.
TPG Telecom chief executive Inaki Berroeta.Credit: Louie Douvis
No matter the interpretation, TPG – which owns the number three player in the mobiles market, Vodafone – is shrinking.
Telstra is the unassailable market leader, but Vodafone would clearly like a shot at the number two, Optus.
Bear in mind that the merger between mobile operator Vodafone and broadband and infrastructure group TPG that created the TPG of today was cemented only three years ago. And while the listed company bears the name TPG, its largest shareholder is a Vodafone joint venture with Hutchison, another international telco giant that struggled to break into the Australian market.
This rather ungainly corporate structure is the product of a series of corporate deals since the early 2000s that have emerged from the wellspring of Vodafone’s attempts to become a large player in the Australian market.
TPG’s chief executive Inaki Berroeta, a Vodafone alumnus who retained the top job after the merger, seems to be a proponent of Samuel Beckett’s mantra “Try Again, Fail Again, Fail Better”.
From what can be pieced together from the scant information TPG has provided to the market, this latest deal looks like a demerger (or unravelling) of the Vodafone merger inked in 2020.
The whole idea of the merger in the first place was to create an integrated telecommunications company, but what emerged was also a company that was heavily burdened by debt, which in turn was strangling its attempts to invest in its mobile business.
Last year, the company raised $950 million by selling most of its mobile tower and infrastructure network, and management has since declared it was looking at other possibilities.
Telco infrastructure assets are particularly hot and fashionable right now, so timing-wise it’s easy to see why TPG is striding down the catwalk.
Despite Vodafone’s ambitious deals over the years, it has remained a very distinct third in the mobiles market. It needs capital to invest in mobile spectrum if it is to have any chance of chasing down Optus.
The most recent of its attempts to improve mobile market share was a deal allowing its use of Telstra’s towers in regional Australia, which was knocked back this year by the Australian Competition Tribunal.
The TPG-Vocus deal has yet to be cemented, and will also need to go through the competition regulator’s hoops.
This time, it will be Vocus that will need to convince the regulator that adding more to its wholesale infrastructure assets doesn’t lessen competition in particular parts of this market. Vocus wants to bulk up, so it can compete more effectively for business and government customers with market leaders Telstra and Optus.
Thus, the Australian Competition and Consumer Commission has some weighing up to do.
Will the positive prospect of Vodafone becoming a stronger player in the mobiles market outweigh Vocus gaining too much power in the wholesale and government infrastructure ownership?
TPG investors will certainly be hoping the proposed deal gets a regulatory tick. Since the 2020 merger was completed, the company’s shares have woefully underperformed, down 36 per cent compared with the S&P/ASX200, which is up 22 per cent over the same period.
On news of the proposed asset sale to Vocus, TPG’s shares jumped 13 per cent.
TPG’s chief executive Inaki Berroeta, a Vodafone alumnus who retained the top job after the merger, seems to be a proponent of Samuel Beckett’s mantra “Try Again, Fail Again, Fail Better”.
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