Australia's TPG Telecom eyes Vodafone deal, shares soar

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SYDNEY (Aug 22): Australia's TPG Telecom Ltd said on Wednesday it was looking into a merger deal with rival Vodafone, a move that could provide a faster and cheaper entry into the mobile network market while tempering competition in the cut-throat industry.

The news sent TPG's shares soaring 20% to a near-two-year high, their best daily gain since 2009.

TPG and Vodafone Group PLC's local venture said in separate statements they had engaged in "exploratory" talks, while offering no details including whether a deal would represent a takeover by either party.

"There is no certainty that any transaction will eventuate or what the terms of a transaction would be," TPG said, while Vodafone called the talks "non-binding".

But the news was enough for investors to envisage a significant reshaping of TPG's current strategy of entering the Australian mobile market by spending billions of dollars to roll out its own network infrastructure.

"The reason the market reacted positively is they see that TPG doesn't have to spend an enormous amount of money in building a network; they can just utilise the Vodafone network," said telecommunications analyst Paul Budde, who runs his own consultancy.

Shares in tightly held Hutchison Telecommunications (Australia), which owns half of Vodafone Australia, jumped 50% to a three-year high even as the broader market edged 0.3% lower.

Budde added that a deal could give Vodafone access to new customers, while rivals such as Telstra and Optus "will feel relieved" since a combination would spare them extra competition.

"It looks to me that the entry of TPG in the market will now be significantly less aggressive than if they would have done it on their own," he said.

TPG's announcement last April that it had paid A$1.3 billion to buy a mobile spectrum and that it planned to build a network sent shockwaves through an industry already under huge margin pressure.

Telstra shares, which had plunged then, had their best day in 18 years, leaping 7% to hit their highest since May.

(US$1 = 1.3669 Australian dollars)