VHA under the spotlight as ACCC continues merger fight

Week two of Vodafone and TPG's fight against the ACCC started with the commission trying to dismantle Vodafone's business case for the merger with TPG.
Written by Anthony Caruana, Contributor

The Australian Competition and Consumer Commission's (ACCC) legal counsel, Michael Hodge QC, systematically argued last week that TPG's plans to become a mobile network operator were never well articulated and, therefore, its decision to abandon the creation of its own network was never dependent on the proposed merger with Vodafone Hutchison Australia (VHA).

The second week of the proceedings started with Frank Sixt in the stand. Sixt is the Canadian born and Hong Kong-based non-executive director of CK Hutchison Holdings.

Dr Catherine Button QC, another of the ACCC's legal counsel, questioned Sixt throughout the morning session on Monday. Button faced a sterner challenge in building the case against a TPG-Vodafone merger, as Sixt was able to clearly articulate Vodafone's positions. 

Sixt's experience as a director -- he was unable to precisely enumerate how many directorships he has, saying it was in the hundreds through various public and private subsidiaries of the broader Vodafone business -- and his keen legal mind -- as a member of the bar in two Canadian provinces -- were on full display as he confidently answered questions, corrected Button's suppositions behind questions, and exhibited his deep understanding of how the decision to support the VHA and TPG merger was supported by the VHA board.

It was a shift in gear from last week's sessions, when TPG's chairman and founder David Teoh and CFO Stephen Banfield were questioned heavily on the nature of TPG's business model. Under Hodge's examination, we learned that TPG's network plans largely resided in the mind of Teoh, who allegedly directed Banfield to make adjustments to financial models to justify the purchase of spectrum.     

Under questioning, Sixt said the decisions to enter a joint venture with TPG to purchase spectrum and to later merge were unanimously agreed upon by the board. The plan meant a $3.5 billion debt would be novated with financiers and interest would be paid back using dividends from the new business, which Sixt dubbed as the "New TPG". He added that the acquisition would give the new business access to spectrum without the need to spend "a billion dollars" on capital expenditure.

He added the merged business would also benefit from synergies, creating a far more valuable company than if the two remained separate. However, he did admit that mergers can go either way with some not delivering the anticipated value while others are extremely successful.

Button pushed Sixt on the details of the planned merger, suggesting through her questions that VHA's plans lacked sufficient detail. However, Sixt countered by saying that the board had adequate information at the time of its decision. He noted that a more detailed implementation plan, once the merger was formally approved, would have come to the board in due time.

The federal government's decision to block the use of Huawei equipment on mobile networks across Australia was also a point of focus. Sixt told the court the New TPG could overcome the Huawei ban as a larger company would be able access finances to support the potentially more expense equipment from other vendors.

The afternoon session had Vivek Badrinath, Vodafone Limited's boss for Australia and a number of other countries, on the stand facing Button's questions.

Badrinath said VHA would struggle, given its current market position and financial position, to participate in future spectrum auctions and support the capital expenditure required to expand and augment its network if the merger did not ahead. However, Badrinath did say VHA would build its own 5G network "in due time", despite it being an area where it currently lags behind Telstra and Optus.

The day ended with the first part of the TPG COO Craig Levy's evidence. For that, the ACCC brought back their baby-faced assassin and sometimes playwright Michael Hodge QC.

While Hodge might have co-written a comedy musical with his brother back home in Queensland, there was no joking around as he worked another TPG exec over with questions about product strategy and the company's now-abandoned network rollout.

Levy's testimony was truncated as Justice Middleton called it a day on the stroke of the 4:15pm. The trial will be held for the rest of this month, with Hodge to continue his cross-examination of Levy on Tuesday.

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