Hutchison and Vodafone to merge Australian operations

Stuart Corner
Tuesday, 10 February 2009 00:55

IT Industry - Market

Hutchison and Vodafone are to merge their Australian operations into a 50:50 joint venture, to be named VHA Pty Ltd.

VHA will market its products and services under the Vodafone brand, for which it will pay Vodafone one percent of service revenues, but will retain exclusive rights to use the 3 brand in Australia during a transition period and beyond. To equalise the value difference between the respective businesses, Vodafone will receive a deferred payment of $A500 million from VHA.

The transaction is expected to close by mid-2009, subject to the approval of the Foreign Investment Review Board, clearance from the ACCC and HTAL shareholders' approval.

The deal will create a stronger mobile operator better able to compete with Telstra but particularly against number two player Optus. It will have approximately six million customers and combined revenues of approximately $4 billion, for the 12 months ended 30 June 2008.

Initially it will serve at least 95 percent of the population of which 63 percent will have access to 3G services. Plans are in hand to increase 3G coverage to 95 percent. "Economies of scale across procurement, product development, IT, network, commercial operations and administrative expenses are expected to generate strong value and deliver significant cost savings," the two companies said. "The net present value of operating expense and capital expenditure synergies is currently expected to be in excess of $A2.0 billion, net of integration costs," they said, but gave no indication of how long they expect to take to achieve these savings.

However both companies have long claimed that their membership of global businesses give them strong benefits in procurement, product development and IT. If anything these benefits are likely to be reduced as the new entity is not wholly-owned by either party .

Market research firm Telsyte said that the combined entity would serve one in four Australian mobile users, and 30 percent of all 3G customers. "The combined entity would be relatively strong in the consumer segment with an estimated 25 percent market share, while remaining a small player in the business segment with an estimated share of only 15 percent, Telsyte said.

According to Ovum analyst Nathan Burley, "The operators' customers bases are largely complementary, 3 has strength in postpaid and non-voice while Vodafone has strength in prepaid."
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