Vodafone and TPG also created a new joint venture focused on 3.6 GHz spectrum acquisition

United Kingdom-based Vodafone Group confirmed that Vodafone Hutchison Australia (VHA) has agreed to merge with local telco TPG Telecom to create a new integrated telecommunications operator in Australia.

Vodafone said that the new entity will be in a better position to compete with Telstra and Optus Australia and will be also in a better position to invest in next-generation mobile and fixed network infrastructure. The merger is also expected to generate cost synergies from the combination of two complementary networks and the rationalization of duplicated costs and economies of scale, the U.K. telco said. The combined entity will have an enterprise value of AUD 15 billion ($10.94 billion) and annual revenues of AUD 6 billion.

Vodafone and Hutchison Telecommunications Australia Limited (HTAL) will each own an economic interest of 25.05% in the new company, with TPG shareholders owning the remaining 49.9%. Vodafone said they expect the merger to be fully completed next year, subject to approval from TPG shareholders and regulatory authorities.

“This transaction accelerates Vodafone’s converged communications strategy in Australia and is consistent with our proactive approach to enhance the value of our portfolio of businesses. The combined listed company will be a more capable challenger to Telstra and Optus, and will be much better placed to invest in next generation mobile and fixed line services to benefit Australian consumers and businesses,” said Nick Read, CEO-designate, Vodafone.

VHA is Australia’s third largest mobile operator, is owned 50/50 by HTAL and Vodafone Group and has a mobile customer base of approximately 6 million subscribers. The telco owns and operates a fixed-wireless mobile network with over 5,000 sites.

TPG has the country’s second largest fixed line residential subscriber base, with over 1.9 million customers and a significant corporate, government and wholesale business. TPG owns and operates a 27,000-km metropolitan and inter-capital fiber network.

In parallel to the merger agreement, Vodafone Hutchison Australia and TPG have signed a separate joint venture agreement to acquire spectrum in the 3.6 GHz band.

The Australian government plans to auction 125 megahertz of 3.6 GHz band spectrum, with the auction expected to kick off in late November 2018. The joint venture will register as a participant in the auction. In addition, the two firms will also negotiate with the aim of expanding the business of the joint venture in future, including to acquire future spectrum licenses and/or facilitate various forms of efficient spectrum and network sharing including a shared 5G Radio Access Network.

The two companies said that this JV agreement will not terminate if the merger fails to proceed.

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