Why the VHA merger will boost competition

Summary:The ACCC is concerned that a Vodafone-Hutchison merger will stifle mobile competition, but after new figures reveal systematic deception by carriers it's prudent to ask: could the merger really make things any worse than they already are?

As Australia's telco community braces for this week's impending NBN announcement, it's prudent to consider the seeming contradiction that emerged last week in the mobile infrastructure debate.

On the one hand, we have the announcement that the ACCC is concerned about the potential for the Vodafone-Hutchison merger — intended to create a $4 billion carrier called VHA with 6 million customers — to reduce competition between infrastructure operators; give VHA an unfair planning advantage through existing 3G network-sharing agreements with Telstra and Optus; and push up the prices consumers pay for mobile services.

To pump up their coverage figures, carriers appear to be simply plonking a single mobile tower in a town, then calling it a day... Is this any way to build a national mobile footprint?

On the other is a new report from Market Clarity, a telecommunications analyst group that has invested significant time and effort into creating a map of Australia's telecommunications networks. Market Clarity alleges that our mobile carriers are, perish the thought, exaggerating their coverage in promotional strategies and are based more on marketing than, you know, truth.

Their sin, Market Clarity alleges, lies in their habit of counting a town as "covered" if punters can get a signal in their main street — even though residents in other outlying areas, and there are a lot of them, are left without a signal. Actually counting coverage in areas where people live, as opposed to counting town centres with coverage, leads to a huge discrepancy in coverage: Telstra's claimed 99 per cent coverage becomes 96.33 per cent, Optus' claimed 96 per cent becomes 82.65 per cent, Vodafone's claimed 80 per cent becomes 50.96 per cent, and Hutchison's 60 per cent claim is revised downwards to just 20.

These figures confirm what many mobile users in regional areas must have known all along: mobile infrastructure outside the capital cities (and, indeed, in many parts of those cities) is still sorely lacking. To pump up their coverage figures, carriers appear to be simply plonking a single mobile tower in a town, then calling it a day. Cows, sheep, horses and the people that raise/shear/ride them, are left in mobile-free dead zones.

Is this any way to build a national mobile footprint?

Back to the proposed creation of VHA. The ACCC is concerned that removing one mobile infrastructure operator will reduce competition and make it all but impossible for another mobile network to ever be built. The implication is that the Voda/Hutch merger would be like combining the NAB and Westpac, thereby defeating Australia's long-standing "four pillars" philosophy of banking.

One slight problem with this theory, of course, is that the carriers don't actually own all of their towers: multinational infrastructure operator Crown Castle International actually operates a sizeable portion of Australia's mobile towers (including those of Vodafone and others), leasing space to carriers in a way that certainly wouldn't preclude another operator from doing the same.

The rub, of course, is that I'd be willing to bet Crown Castle's footprint in under-served regional areas is as poor as that of those facilities installed by the carriers themselves: commercial returns, after all, are indeed a real issue for everybody and even that company's website advertises its presence in "prime locations" that presumably don't include a cow paddock 20 clicks west of Oodnadatta.

In this context, it seems hard to support the idea that a Vod/Hutch merger could seriously impact infrastructure. While there will never be another Telstra, ample availability of mobile phone towers means there could always be another Three — offering cut-price mobile services to customers in key metro areas. In the meantime, I'd bet my hat that most of the 20 per cent of Australia's towns served by Three are also served by Vodafone, which will next month extend this footprint into many of the regional and rural centres in which the current operators already fallaciously claim to have a strong presence.

Instead of duplicating each other's footprint in populated areas, the merger would give the company the financial backing and competitive imperative to branch out into more poorly-covered regional areas — and to do it properly this time. This would not only bring rural dwellers an alternative to Telstra for the first time, but it would lend more credibility to innovative offerings such as the 3G-netbook offerings I recently discussed.

A serious number-three telco will light a fire under Optus, which — judging by the all too regular failures of its 3G network — has become too complacent in its number-two position

The introduction of a serious number-three telco will light a fire under Optus, which — judging by the all too regular failures of its 3G network — has become too complacent in its number-two position and failed to keep up its infrastructure investments. Optus could only counter the threat posed by VHA with a serious network investment, which in turn would bring smiles to the faces of more than a few iPhone owners I know.

For these people, the price of mobile services is far less important than whether they actually work — and are available where they're needed. It is in this area that the existing carriers have simply failed to deliver, which is why the ACCC needs to consider the implications for coverage as well as the implications on price. The money will always take care of itself — but only real competition, and the threat of being left behind, will force carriers to expand and invest as they need to.

It is a big change, of course, to scratch one entrant in a four-horse race. But considering that so much of Australia is still unserved, and that our very top-heavy market has so far failed to deliver on the promises it is making, the merger seems like a natural step that will finally foster real competition by giving Telstra and Optus a competitor they — finally — can't afford to ignore. Hutchison shareholders agree, and it will be interesting for all to see whether the ACCC follows suit.

Should Vodafone and Hutchison merge? Can you think of a reason why they shouldn't?

Topics: Telcos, Government, Government : AU, Mobility, Telstra

About

As large as the US mainland but with a smaller population than Texas, Australia relies on ICT innovation to maintain its position as a first-world democracy and a role model for the developing Asia-Pacific region. Award-winning journalist David Braue has covered Australia’s IT and telecoms sectors since 1995 – and he’s as quick to draw le... Full Bio

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