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TPG could buy out Vodafone by next year: iiNet founder

iiNet founder and former CEO Michael Malone has said that Vodafone Hutchison Australia could be acquired by TPG within the next year as Australia's telecommunications industry heads down a consolidation road that will lead to just three major players.
Written by Leon Spencer, Contributor

Vodafone Hutchison Australia could be bought out by local telecommunications player TPG within the next year, according to iiNet founder and former CEO Michael Malone.

Speaking at the Communications Alliance's Rewind/Fast Forward event in Sydney on Wednesday, Malone said that within a year, perhaps two, the Australian telecommunications industry will see the number of major players dwindle to just three: Telstra, TPG, and Optus. This trend will likely see the local industry lose any differentiation between vendors.

"In my opinion, the cost of consolidation's been a complete loss of personality and differentiation, quality in this industry," Malone said during his keynote presentation at the event. "What are we left with now? We're left with five players, and I predict there will be three players in one year.

"At the moment, five players control 97 percent of the market; then there will be three players in a year, and there will be one who has failed, and we can predict who that is going to be. But it's game over in a year," he said.

Malone's comments come as one of the largest of those five players, TPG, moves to acquire iiNet for AU$1.4 billion. On March 13, TPG announced its plans to acquire its rival, which also happens to be the third-largest internet service provider in the country.

The deal, which is yet to be approved by the country's regulators, will see the combined TPG company become larger than Australia's second-largest telecommunications company Optus, increasing TPG's customer base to 1.7 million.

Malone, who still owns 4 percent of shares in the company, previously said that the deal would be bad for investors, the company, its staff, and its customers.

iiNet chair Michael Smith said earlier this week that he "seriously contested" the claim, but admitted there is concern that TPG's low-cost company culture might seep into iiNet, which has traditionally been focused on customer service at a premium price.

Malone, who left iiNet in 2014, said that while he isn't bitter about the deal, he is concerned that if it goes ahead, it would leave the Australian telecommunications industry landscape with just a few players.

"Is TPG brave enough to buy out Vodafone? Will the market support them? Absolutely," he said. "So, I think what's going to happen in the next year is we're going to find three consolidated players that are going to be mobile and fixed. And if that doesn't happen in this market, then Telstra will win, and it's going to be game over.

"What I'm sad about now, I suppose, is what's left now is faceless. What does Telstra stand for? They're safe.

"What does TPG stand for? They're purple, and they're cheap -- but they're very clear about what they stand for.

"What the hell does Optus stand for? This industry is being let down by a number two player whose best legacy in this entire industry is the existence of TPG and iiNet. They need to stand up, and I think they are undeveloped, so I think we may see a change in this marketplace coming soon," he said.

Simon Hackett, co-founder of iiNet acquisition Internode, also laid out his view of the immediate future for the country's telecommunications industry, saying that it would be unlikely that Vodafone Hutchison Australia would survive in the local landscape as the only big telco player without a fixed-line offering.

"Vodafone are the obvious example of a [technically] brilliant mobile network with no fixed customers. There's a fixed-line industry that could use a mobile network," he said during his presentation at the event.

However, he suggested that the consolidation of the country's telecommunications players would soon be drawing to a close.

"We will see some more consolidation here, but not a heck of a lot. There are some other players still there ... but we're kind of running out of consolidation targets here," he said. "We've grown up as an industry to the point where we've just got big players, and a very big network, and NBN Co trying very hard to join the dots here."

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