ACCC approves $3bn Vocus, M2 merger

Australia's competition watchdog has given the green light to further consolidation of the national telecommunications market, approving the proposed merger between Vocus and M2.

M2 Group chief executive Geoff Horth.

In September, the two telcos announced they would enter into an all-scrip merger, creating a vertically integrated telco worth more than $3 billion.

The deal will see M2 shareholders receive 1.625 Vocus shares for each M2 share they currently own, giving them about 56 percent of the combined entity.

M2 Group chief executive Geoff Horth will serve as chief executive of the combined company, with Vocus CEO James Spenceley sitting on the board as an executive director.

In its ruling today, the ACCC noted M2’s brands, which include Dodo, Engin, Commander and iPrimus, are aimed more at the residential and small business markets, while Vocus focuses on the enterprise and government segment.

It said there were limited overlaps between the two companies in terms of retail and wholesale fixed broadband services, retail and wholesale fixed voice services, backhaul services and data centre services.

The ACCC also said the pair were not “significant suppliers of wholesale transmission services” and the proposal would not increase vertical integration within the sector.

“The ACCC concluded that this was primarily a merger between two complementary businesses. Significantly, the merged firm will also face significant competition from Optus, Telstra and TPG. This merger consolidates the fourth player in the market,” ACCC chair Rod Sims said in a statement.

The ruling comes despite strong criticism of the ACCC’s decision to approve TPG’s takeover of iiNet.

Sims was forced to defend the move, arguing it was not a “black or white” issue.

Industry analyst Paul Budde told iTnews the ACCC had made the right call in approving the Vocus/M2 merger.

He said telecommunications was increasingly a “utility” market where economies of scale and purchasing power matter.

“Obviously, at the top end, with deals such as the one between TPG and iiNet, you have to ask how the deal will affect competition. But a deal between smaller players, like M2 and Vocus, won’t have the same effect,” Budde said.

“On their own, M2 and Vocus wouldn’t have the scale to survive against Telstra, Optus and TPG/iiNet, but combined they’re in a much better position.

“Vocus is corporate and wholesale and that is a good mix for M2, because it gives them extra purchasing power in the retail market.”