TPG Telecom-Vocus US$3.5B deal cleared by the Australian competition regulator

　　Vocus Group has moved a step closer to its proposed acquisition of TPG Telecom's fiber network assets and Enterprise, Government and Wholesale (EGW) fixed infrastructure business after the Australian Competition and Consumer Commission (ACCC) approved the deal, valued at $5.25 billion Australian dollars (US$3.54 billion).

　　The ACCC announced on Thursday that it would not oppose the acquisition, saying it was unlikely to substantially lessen competition in any market.

　　"Our investigation found that Vocus concentrates on supplying large enterprise and government customers, whereas TPG focuses on the small and medium enterprise segment of the market," ACCC Commissioner Philip Williams said in a statement.

　　Competition to remain strong

　　The ACCC's review of the proposed acquisition focused on the extent to which Vocus and TPG compete in the provision of data network and connectivity services, including fixed-line Internet services, to large business and government customers. The Australian competition regulator also considered the impact of the transaction on the supply of fixed-line voice services, NBN wholesale aggregation services and data center, cloud and security services.

　　It noted that the introduction of the NBN's wholesale Enterprise Ethernet product in 2018 has significantly reduced barriers to entry and expansion for serving large customers. This product has enabled providers with no, or a small, fiber footprint to compete for large customers.

　　The ACCC added that Vocus will continue to face strong competition from companies like Telstra and Optus, and local players like Aussie Broadband and Superloop.

　　TPG Telecom and Vocus Group entered into a binding share purchase agreement last October for the A$5.25-billion transaction, which includes the sale of its Vision residential wholesale broadband business.

　　Upon completion of the acquisition, fiber specialist Vocus will operate a network of more than 50,000km of fiber owned or leased under long-term right-of-use agreements, nearly 15,000km of international submarine cables and close to 20,000 connected buildings.

　　Vocus, owned by Macquarie Infrastructure and Real Assets (MIRA) and pension fund Aware Super, will also acquire TPG's PPC-1 submarine cable running from Sydney to Guam. The cable will complement Vocus' existing Australia-Singapore cable, the North-West Cable system, the Darwin-Jakarta-Singapore cable system and the Pacific Connect cable system under construction.

　　For Vocus, the acquisition of TPG's fiber and fixed network assets will position the company as a key digital infrastructure operator in Australia.

　　Important regulatory milestone

　　TPG Telecom said it is pleased to have passed an important regulatory milestone as it focuses on closing the transaction with Vocus later this year.

　　"This transaction forms an important part of our strategy to simplify our business and accelerate and increase the streamlining of our operating structure and cost base," said TPG Telecom chief executive Iñaki Berroeta in a stock exchange filing on Thursday.

　　The company said that additional conditions must be satisfied before the transaction can be completed, including approval by the Foreign Investment Review Board and US regulatory approvals.

　　As previously announced, TPG Telecom will use the net cash proceeds from the sale to fund future capital management and business investment initiatives. The details of these initiatives have not yet been finalized as they continue to evolve.

　　Analysts at Sandstone Insights called the ACCC's approval a major turning point for TPG, which is in the process of rebuilding its balance sheet, according to Reuters.

　　"With lower interest costs, a declining opex profile and lower capex requirements, TPG is poised for substantial free cash flow growth for the next 3-4 years," the analysts said, as quoted by the news agency.

　　The ACCC's approval of the proposed TPG Telecom-Vocus acquisition comes five months after the competition regulator gave its nod to TPG's network-sharing agreement with Optus, which covers regional and rural Australia. The agreement had doubled the size of TPG's mobile coverage as the company seeks to grow its market share in Australia's under-penetrated rural regions.