Australia’s mobile phone sector has been rocked by news that telecommunications giants Vodafone and Hutchison (which operates the 3 brand in Australia) have agreed to merge their Australian businesses in a new joint venture called VHA.
The merger, announced this morning, will see each company hold 50% in the new enterprise but will operate under the Vodafone brand. VHA will also hold the exclusive rights to the 3 brand.
Global CEO of Vodafone, Vittorio Colao, described the deal as “an important step in the transformation of the Australian mobile industry”.
“This transaction will benefit customers in Australia as it creates a company with the necessary scale to compete strongly in the mobile market.”
Vodafone will receive a $500 million deferred payment from VHA to equalise the difference in value between the two groups. The joint entity will have around six million customers and a combined revenue of $4 billion for the year ending 30 June 2008.
The transaction is expected to be completed by mid 2009, after approval from the Foreign Investment Review Board, the Australian Competition and Consumer Commission and Hutchison Telecommunications shareholders.
Nathan Burley, Ovum telecommunications analyst, says the merger is a major event and the deal is likely to be quite complex.
“When you perform mergers on these scales and you conduct rebranding, moving under the Vodafone brand now, that’s obviously going to be quite challenging. In terms of what Hutchison have done, they’ve moved from the Orange brand to the Three brand so they do have some experience in how to do that with the market.
“We’ve said for a long time that three network operators is the most likely scenario in Australia. For quite a while, some sort of tie up was expected.”
Nick Ingelbrecht, Gartner research director, says the merger will be a complex operation that may even require some job losses.
“I suppose that we have two of the weaker players in the market battening down the hatches due to the financial crisis, and the increase in competitiveness in the Australian mobile market and the relentless pressure from Telstra in the 3G space.
“It’s a merger of two of the weaker players to achieve a critical mass of market share,” he says.
“It’s going to be confusing for consumers about what they’re actually getting in terms of products and even with coverage. In general terms, it’ll be difficult to realise the merger without surgery – perhaps we’ll even see significant job cuts.”
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Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
