When looking at the telecom industry we think of Telstra (ASX: TLS) and Optus. However, could the TPG-Vodafone merger put pressure on the telecom giants and change the industry? Time will tell. Today we will discuss the merger, whether the new ASX company is worth watching , and the impact on Telstra.
TPG/Vodafone Merger Given the Green Light
Today the federal court approved the $15 billion mergers between TPG Telecom (ASX: TPM) and Vodafone Hutchison Telecommunications Aus Ltd (ASX: HTA). The federal court overturned the ACCC’s opposition to the merger back in May 2019. Because, contrary to the ACCC, the Federal Court could not see how the merger would reduce competition. The ACCC has 28 days to lodge an appeal. However, no news has indicated they will.
The emerged company will be called TPG and listed on the ASX in mid-2020. Resulting in the third fully integrated telecommunications company in Australia.
Is TPG/Vodafone worth watching?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Investors rallied behind TPG today causing a 15% surge. With the rise being off the back of the merger it looks like the quick growth is already over. Because investors either got in and out (Intraday trade) or got in early in the morning. However, once TPG’s trading halt is lifted on Monday the market confidence behind TPG be revealed.
News around the merger drove up HTA 17% over the week. Showing the investment interest around both companies.
Also, with the slow roll-out, current uncertainty, and health issues the profitability of 5G is difficult to predict. Thus, despite Vodafone having an ambitious 5G rollout, which can be fast-tracked by the merger, investors should not base their investment of forecasted success of the new wireless technology.
In my opinion, investors should wait until the merger is completed in mid-2020 to make an informed decision. Maybe once the joint company lists on the ASX, the new share price will provide us with an opportunity. Something to think about.
How will the merger impact Telstra?
Telstra experienced a 2% jump this morning after releasing Its half-year results. However, the Telstra increase was short-lived once the merger news spread. Since the federal court’s decision Telstra dropped by 4.7%. Investors probably forecasted TPG-Vodafone possibly stealing some of Telstra’s market share. Especially with Vodafone having an ambitious 5G rollout plan. With the failure of the NBN, the uncertainty around 5G and now the TPG-Vodafone merger you might think investing in Telstra is pointless.
However, despite the negative sentiment, there is a silver lining for Telstra. The increased competition in the Telco industry will cause Telstra to be more innovative, more reliable and more customer orientated. I personally believe, Telstra will use their branding, competitive edge and reputation to remain “Australia’s best mobile network”. Thus, providing investors with a nice entry point if you do your own research and have confidence in the business.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Associate of Youth Investment Group