Updated December 13, 2018 20:08:11

Photo: Vodafone will hold 50.1 per cent of the combined company when it merges with TPG. (ABC News: Alistair Kroie)

Red flags have been raised about TPG's plan to merge with Vodafone Hutchison Australia, leaving open the possibility that the competition watchdog may block the deal.

Customers could end up "paying higher prices" for "less innovative" mobile and fixed broadband plans if the companies are allowed to merge, the Australian Competition and Consumer Commission (ACCC) said in a statement today.

"TPG is currently on track to become the fourth mobile network operator in Australia, and as such it's likely to be an aggressive competitor," ACCC chairman Rod Sims said.

"If TPG remains separate from Vodafone, it appears likely to need to continue to adopt an aggressive pricing strategy, offering cheap mobile plans with large data allowances."

"Our preliminary view is the merged TPG-Vodafone would not have the incentive to operate in the same way, and competition in the market would be reduced as a result."

Investors in both telcos have greeted the ACCC announcement with extreme pessimism.

TPG shares closed sharply lower, down 16.7 per cent to $6.45.

Meanwhile, panic selling from Hutchison's investors caused its stock to plunge 21.4 per cent to 11 cents. Earlier in the day, it had fallen by more than 30 per cent at its lowest point.

Implications of merger

If the nation's third- and fourth- largest telecommunications were to join forces, it would leave Telstra and Optus as the only other major players in the sector.

The race is on to roll out 5G but let's get a few things straight — it's not like this technology will magically transform your life overnight.

Both parties to the merger have complementary strengths.

While TPG is seen as a fierce price competitor in the fixed broadband market, Vodafone owns and operates its own mobile network.

Vodafone Hutchison Australia is a joint venture between the Britain-based Vodafone Group and locally listed Hutchison Telecommunications.

It has also started supplying fixed broadband services on the National Broadband Network (NBN), and is a "relatively minor player" in this space, Mr Sims said.

The regulator is also factoring the longer term impact of the TPG-Vodafone deal — particularly given that it expects consumers to increasingly opt for mobile broadband services after the rollout of the 5G network, instead of fixed home broadband.

The competition chief said his organisation is "continuing to consider whether operators will need to offer both mobile and fixed broadband services in the longer term to remain competitive, meaning that TPG and Vodafone will necessarily be closer competitors in the future."

The ACCC is accepting submissions about the merger from interested parties until January 18.

Furthermore, it has delayed its final decision on the deal until March 28.

Topics: business-economics-and-finance, company-news, telecommunications, takeovers, australia

First posted December 13, 2018 10:32:19