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Monday, 25 May 2009 15:19

Vodafone and 3 attempt to ward off ACCC with pricing promise

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Some market watchers say that a pricing announcement today by Vodafone and Hutchison will not influence an ACCC determination about their proposed merger on May 29. However, it is hard not to view the announcement promising to maintain existing pricing for the next two years as a pretty fair attempt.

The two mobile phone carriers in February announced their intention to merge Australian operations, which would create a carrier with about 6 million subscribers. The merged entity would have the scale to rival second placed Optus which has a bit less than 8 million subscribers and Telstra which has about 9.5 million subscribers.

However, the stumbling block could be the Australian Competition and Consumer Commission which is due to make a determination on the merger this Friday 29 May.

The big issue that has been raised is whether the merger would lessen competition in the Australian mobile phone market and thus result in raised prices.

Both Vodafone and 3 (owned by Hutchison) are the two most aggressive players in the Australian market when it comes to price. Both offer attractive plans and rates in both mobile voice and data compared to their two bigger rivals and both compete vigorously against each other for a similar price conscious customer demographic.

Thus, there is a strong argument that the merger could significantly impact the budget priced mobile market in Australia.

It is in this context that the companies issued a joint announcement today with a title boldly proclaiming: "Vodafone and Hutchison committed to maintain market-leading prices"

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The announcement then goes on to say that both companies in the event of the merger proceeding have confirmed that, "all new and existing contract customers of Vodafone and 3 will be able to enjoy the same great value offered on all existing Vodafone and 3 mobile voice and data plans for the next 2 years."

Given that many subscribers have already recently signed on to a two-year contract, that's good to know.

The announcement also says that $0 upfront 24-month contracts will still be on offer. That's also good to know but still says little about the pricing of those contracts.

Nigel Dews, CEO of 3 and proposed CEO of VHA, the merged company, said: “We operate in a fast-moving market and we want to be clear that, following the merger, Vodafone and 3 will remain extremely competitive and continue to provide great value to customers.

“We’re happy to reassure our customers with a public commitment that if the merger proceeds as intended, no plan will be withdrawn from market for the next two years.

“During this time we will also be introducing new offers and services to appeal to new customers.”

What the above amounts to is a limited guarantee that the new player will maintain the currently aggressive pricing policies of both companies for just two years. After that all bets are off.

It's hard to see how the creation of an operator of the same scale as the current two big players will not result in a lessening of competition. True, there will be a choice between three big operators, a similar sort of choice that we currently enjoy between the big four banks - and we know how hard they compete don't we?

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Stan Beer

 

Stan Beer co-founded iTWire in 2005. With 30 plus years of experience working in IT and Australian technology media, Beer has published articles in most of the IT publications that have mattered, including the AFR, The Australian, SMH, The Age, as well as a multitude of trade publications.

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