ACCC sticks to its guns that TPG will build a fourth mobile network

The case is adjourned until the decision is handed down later this year or in February 2020.

The final day of the Vodafone Hutchison Australia (VHA)/TPG v Australia Competition and Consumer Commission (ACCC) matter has concluded. It's now a waiting game as Justice Middleton deliberates before making his decision later this year or in February 2020.

The case put by the ACCC is reasonably straight forward. It believes that if the merger is blocked, TPG will resume building its mobile network, thus creating increased competition in the mobile network market.

TPG and Vodafone, meanwhile, have said the ACCC's rationale is based on a counterfactual argument -- basically a case of "if this, then that", and that the obstacles in front of TPG building a new network are now insurmountable. 

Peter Brereton QC and Dr Ruth Higgins, the legal counsel for VHA and TPG respectively, made their closing arguments yesterday, arguing against the ACCC's block on their proposed AU$15 billion merger. 

VHA and TPG say building a fourth network is unrealistic 

The combined reasons of the design behind TPG's proposed network being flawed and the need for a different hardware provider, following the ban of Huawei's telco equipment, means that the entire network would need to be redesigned, TPG said in court. 

Coupled with evidence from hardware providers that the equipment needed by TPG was not on product roadmaps, Higgins and Brereton argued yesterday that there is no technical or commercially feasible way for TPG to build a new network. 

One of the key limitations Higgins focused on in her closing comments was that TPG allegedly requires equipment that can be fitted on utility poles and supported by both vertical and horizontal beam-forming -- the ability to transmit cellular signals to the higher floors of buildings as well as across broad areas. According to Higgins, such equipment simply does not exist and would not exist in a timeframe that would allow TPG to become an effective competitor. 

And in spite of the company having purchased 700MHz spectrum, Higgins added that this would not be sufficient to build a network that has enough coverage and performance to service the Australian market other than in very limited situations. She then gave the example that while it could work for suburban areas, the spectrum would not penetrate buildings in CBDs effectively.

With other carriers now having 5G solutions, having to start over was not possible, she said. 

"It's like learning to ride a bicycle by getting on a Yamaha."

In essence, TPG's argument has boiled down to the telco saying it is not in a position to resume building a network, and that the company would have to start over with a new design, new hardware provider, and a significant change of view by TPG's reclusive supremo, David Teoh. 

The only way TPG could enter the mobile network business, TPG has said in court over the past few weeks, would be through a merger with Vodafone.

The ACCC closes, saying TPG could still build a viable network 

Michael Hodge QC kicked off the ACCC's closing submission about 40 minutes after the beginning of the final day of the case.

Hodge's argument began by looking at the probability of TPG rolling out a network and the quality of that network. Hodge said that the ACCC believes TPG will roll out a 4G network that could be upgraded to 5G even if the merger continues to be blocked. He added that Middleton could, based on the cumulative evidence, come to a conclusion that TPG would deploy a new network. But Hodge added that the commission would not design such a network to prove its case, saying it's not the ACCC's role to design the solution.

Middleton said that timing was important as the nature of the legal process has meant that sufficient time had passed such that the situation facing TPG today is different to the environment TPG was in when it commenced its network program in 2017. 

In response, Hodge said that Teoh's speculation, that he would never build a new network, was founded upon the assumption that a merger would go ahead. With this notion, Hodge argued on the final day of the hearing that Teoh's answer could change if the ACCC succeeded in blocking the merger. 

Echoing his opening statements, Hodge asked whether TPG's initial network program was hopeless or whether everything had changed. But this was never a view put to Teoh by his executive team or board. Although there were some questions about matters such as costs of fibre and other details, the initial network design was never questioned and the premise that the network would be a "white elephant" was never put into evidence.

Hodge also noted that VHA saw the entry of TPG as a major risk to its business. But when TPG ceased its network rollout, VHA dismissed the risk as being "minor and rare" from its previous status of being "likely and high impact". 

In short, the view that the TPG network was never going to work is not supported by the evidence before the court, said Hodge. 

The 5G challenge

TPG's plan to roll out a 4G network that could be upgraded to 5G was founded on the assumption that a suitable hardware device, that could be mounted on utility poles, was in development by Huawei. But that product was scrapped when the government's security advice barred Huawei from being a participant in Australia's 5G mobile networks. 

Hardware that fulfills TPG's needs and supports vertical beam-forming -- important for coverage in dense CBD areas -- could be developed but they would suffer from the challenges that are associated with being a small device.  

While Huawei equipment can no longer be used, Hodge argued that a 5G solution could still be deployed by using a different hardware partner and that the technical hurdles TPG would face could be overcome. 

Hodge also suggested that if the network rollout was recommenced by TPG, it could build a 4G network with a plan to move to 5G with whatever equipment will be available at the time, whether using hardware from someone other than Huawei or altering aspects of the deployment plan.

Middleton said that if the merger continued to be blocked, TPG could either monetise the spectrum or it could sit and wait to see what options would present themselves.   

The ACCC also said Teoh would "not close his eyes" to the possibilities of a new network should the merger continue to be blocked. At the very least, there was a "real chance" he would look at the potential options in front of him, they have said in court.

Hodge, on behalf of the ACCC, also argued that if any one of the obstacles faced by TPG was overcome, then the likelihood of other things falling into place would increase. 

"TPG would have a meaningful effect on the competitive process", said Hodge. There was evidence provided, in closed court, by mobile virtual network operators and other parties suggesting that TPG could substantially impact the mobile network market.

Ultimately, the ACCC's contention is that TPG will build a network if the merger is blocked, saying that the quality and nature of that network is not the commission's concern; as long as there's a fourth network the competitive environment will be better for consumers. 

Closing out

During the hearing's final comments, Higgins reiterated that any network built by TPG, if the merger is blocked, could not be divorced from its quality. Building a network isn't enough, she said, as it would also need to deliver on performance and coverage. 

Higgins added that the binary idea that TPG would build a network if the merger is blocked was incorrect. Referring to evidence from Teoh, she reiterated that TPG would look for ways to monetise the spectrum by selling it, thus stopping any chance of the telco creating a new mobile network. 

Higgins also said the ACCC's position regarding the network equipment TPG wanted and its potential future availability was contradictory to the evidence given by vendors.

Brereton followed by saying the evidence of Professor Gray and Michael Neal, which was attacked during the second week of the trial, was not at the forefront of the VHA and TPG case. He, once again, reiterated that Teoh's plan to abandon the construction of a fourth mobile network was undisputed. But he added that the ACCC needed to provide some evidence that building a network today was commercially and technically viable and that the commission's view that it was not able to mandate a network design. 

Justice Middleton closed the hearing by saying he would use his best endeavours to provide a ruling by December 2019 although February 2020 is more likely.

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