In its first review of a merger authorisation application since the current regime came into effect in 2017, the Australian Competition Tribunal (Tribunal) has upheld the Australian Competition and Consumer Commission (ACCC)’s decision to not grant authorisation for the proposed spectrum sharing arrangements between Telstra and TPG on both competition and public benefit grounds.[1]
The decision raises significant procedural and evidentiary issues for future merger authorisations, including the ACCC’s current review of the proposed Brookfield/Origin merger and the Tribunal’s review of the proposed ANZ/Suncorp merger.
Telstra and TPG are two of three major mobile network operators in Australia (the other being Optus). Compared to Telstra and Optus, TPG has a smaller customer base and less coverage in the metropolitan fringe and regional areas covered by the proposed transaction (regional coverage zone). Telstra and TPG agreed a long term network sharing arrangement relating to 4G and 5G services, comprised of three related agreements, including:
(collectively, the Network Sharing Agreements).
As a result of the Network Sharing Agreements, TPG’s network coverage (by population) would increase from ~96% to ~98.8% and each of TPG and Telstra would continue to retain independent control of their respective core networks (Proposed Transaction).
Telstra and TPG sought merger authorisation from the ACCC for the spectrum sharing component of the Proposed Transaction.[2]
Telstra and TPG argued that the Proposed Transaction would increase competition in the relevant markets because:
The parties also argued that the Proposed Transaction would result in net public benefits, including more efficient use of TPG’s spectrum holdings, less physical infrastructure in the regional coverage zone, increased competition in wholesale and retail markets and reduced mobile congestion in regional areas.
Optus strongly opposed this merger authorisation application.
The ACCC may only authorise a merger if it is satisfied that the transaction is not likely to substantially lessen competition in any relevant market or that there is likely to be a net public benefit.
The ACCC denied this merger authorisation application on both competition and public benefit grounds. The ACCC found the Proposed Transaction would further entrench Telstra’s market power and its position as the largest supplier of mobile services in Australia. Further, the ACCC considered that any short term benefits arising from an improvement in TPG’s network coverage and efficiencies for TPG and Telstra were unlikely to endure. The ACCC found that these public benefits would be outweighed by long term detrimental impacts to competition.
The Tribunal upheld the ACCC’s decision, but with some significant differences in approach.
Examination only of the conduct for which authorisation is sought
While the ACCC assessed the competitive effects and potential net public benefits of the Proposed Transaction as a whole, the Tribunal took a narrower approach looking only at the public benefits / detriments of the spectrum sharing arrangement (i.e. the specific conduct for which authorisation was sought). The Tribunal considered that, if authorisation for the Proposed Transaction as a whole had been sought, the outcome would have been more finely balanced.
Nevertheless, the Tribunal upheld the ACCC’s decision to deny authorisation, on the basis that:
1. Authorising the spectrum sharing arrangement would not materially improve competition in mobile telecommunications markets, including because it would undermine Optus’ incentives to invest in a 5G network in the regional coverage zone, lead to an increase in network quality gaps between the key competitors over time, and further weaken competitive constraints on Telstra. The Tribunal found that the nature of the spectrum sharing arrangements was such that any potential improvement in TPG’s competitive position was uncertain and potentially limited.
2. Limited public benefits would likely arise from the spectrum sharing arrangement, and would be outweighed by public detriments in terms of competitive harm.
Limited review means limited review
The Tribunal took a relatively narrow view of its powers to accept evidence that was not before the ACCC as the initial decision maker. In particular, the Tribunal held that its powers to permit the parties to adduce information that was not in existence at the time the ACCC made its determination to ‘clarify’ material before the ACCC, does not extend to testing the credibility or reliability of that material. This aspect of the Tribunal’s decision applies equally to material that the merger parties were able to access during the ACCC process and material that they could not access until commencement of proceedings in the Tribunal.
Should you seek authorisation for arrangements that are ancillary to a merger?
The Tribunal made its decision based on the likely impact of the Spectrum Authorisation Agreement only, concluding that the broader impacts of the Proposed Transaction were “coincident with, but not causally related to” the conduct that was the subject of the authorisation application.
The decision reaffirms that, for transactions that involve a series of interrelated elements, the scope of the conduct for which authorisation is sought can have significant strategic importance in terms of the competition effects, public benefits and detriments that can be taken into account. In some cases, seeking authorisation for both the acquisition of assets and a broader range of conduct may be warranted.
While the ACCC’s authorisation forms do not currently contemplate combined merger and non-merger authorisation applications and these processes have different timelines, it is likely that the ACCC would accept and review such applications together, but on dual process timelines.
Proposed merger reforms are likely to emulate merger authorisation process
The ACCC’s proposal for a mandatory merger regime to replace the informal clearance process is likely to incorporate several elements of the current merger authorisation process, including information requirements upfront, fixed timelines and limited review by the Tribunal. This case raises complex issues in the context of the broader merger reform process. In particular, the case brought into focus the challenges of balancing the interests of: (i) third parties in terms of maintaining confidentiality over their materials; (ii) the ACCC in having all relevant information when making its initial decision; and (iii) the merger parties in having an opportunity to test and respond to the information on which the ACCC’s decision is based.
Merger reform is yet to be considered by the recently established Competition Taskforce, but the appropriate balancing of these interests will need to be addressed while ensuring that any new merger review process is not materially more costly and/or time-consuming than the current regime.
[1] Applications by Telstra Corporation Limited and TPG Telecom Limited (No 2) [2023] ACompT 2.
[2] Telstra and TPG sought merger authorisation from the ACCC as the Radiocommunications Act 1992 (Cth) deems TPG’s grant of rights to Telstra to use TPG’s spectrum to be an acquisition of assets under section 50 of the Competition and Consumer Act 2010 (Cth).
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