TPG Telecom has confirmed media speculation it is in talks with Vodafone Australia regarding a potential merger of the two telco companies.
In a statement to the ASX on Wednesday, TPG said it has held exploratory discussions with Vodafone regarding a ‘merger of equals’ between the competing companies.
‘The TPG Board notes that there is no certainty that any transaction will eventuate or what the terms of a transaction would be,’ the statement said.
Fourth-ranked TPG, which provides broadband services under its own name as well the iiNet and Internode brands, is currently spending $1.9 billion on building a fourth mobile network for Australia.
Vodafone is Australia’s third-biggest player by subscriber numbers, after Telstra and Optus.
TPG recorded a fall in profit at its first-half results in March as subscriber numbers fell.
Telco sector players have had their margins pressured by the rollout of the National Broadband Network and competition in the Australian broadband and mobile market has been intensifying as incumbents deal with challengers – such as TPG – and the NBN impact.
Experienced telecommunications analyst Paul Budde says a merger between TPG and Vodafone is a rational business decision.
Mr Budde said Vodafone stood to gain a substantial boost to subscribers in a highly competitive market and TPG could save on the high costs it was facing building out its mobile network.
While it was a ‘win-win’ for both companies, it also raised the possibility that TPG, which was a potential price challenger, will cut back on price competition so as not to cannibalise Vodafone’s customer base.
‘Telstra and Optus will be delighted with this as competition will now be less severe,’ Mr Budde said in a research note.
TPG shares were up 52 cents, or 8.3 per cent, to $6.81 at 1047 AEST – their highest level since January, 2017.
Shares in Hutchison Telecommunications Australia – the thinly traded ASX-listed joint venture partner with Vodafone – were also higher – up 0.4 cents, or 6.7 per cent, to 6.4 cents.