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Australian ISP group TPG Telecom and mobile operator Vodafone Australia have announced plans to merge to create a full-service telecoms operator.

THE Australian mobile market is about to get a huge new player.

Under the terms, Vodafone Group and Hutchison Telecommunications (Australia) will each emerge with 25.05 per cent of the merged entity, David Teoh 17.12 per cent, his backer Washington H. Soul Pattinson 12.61 per cent and other TPG shareholders 20.17 per cent.

Apart from the debt the Vodafone and Hutchison groups appear to be taking onto their own balance sheets to create the near-equality of interests between the Vodafone and TPG shareholders, TPG will spin out its relatively recently created Singapore mobile business to its shareholders.

Before the merger proceeds it will have to face reviews by the Australian Competition and Consumer Commission as well as the Foreign Investment Review Board.

The $15bn merger will bring together Vodafone's mobile network and nearly six million mobile customers with TPG's extensive fixed-line broadband services which boasts 1.9 million residential subscribers as well as corporate, government and business customers.

The merger will also bulk up Vodafone's 156 MHz of mobile spectrum with TPG's little-used 40 MHz slice, bringing it close to Telstra's 217 MHz (Optus is far out in front of the mobile market in spectrum holdings with 334 MHz).

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Shares in TPG Telecom soared after announcing the merger with Vodafone Hutchison merger. There are no changes now planned to any of the existing brands of either VHA or TPG.

The merger is said to be implemented via TPG Scheme of Arrangement with the new merged group to be called as "TPG Telcom Limited" having pro forma enterprise value of approximately $15.0 billion.

Although the pair have stated there would no notable changes to either of the brands after the merger, the opportunity to cross-sell Vodafone's mobile and TPG's broadband offering could mount a serious challenge to the domination of Telstra and Optus who control more than 80% of the mobile market as it stands.

Shares in TPG were up $1.28, or 16.2 per cent to $9.16 at 11.55am, while shares in Hutchison Telecom Australia - as Vodafone Australia is known - surged 45.6 per cent to 18.2¢ each.

An announcement from the two telcos said that VHA expected to have net debt $1.94 billion (plus an $80 million spectrum instalment at the end of January) following a restructure its existing debt facilities by its owners, Vodafone and Hutchison.

TPG is one of Australia's largest internet service providers. Iñaki Berroeta, CEO of Vodafone, will take up the CEO position of the merged entity, while David Teoh, current TPG owner, will be the chairman.

Both companies confirmed they will bid for 5G spectrum when it is auctioned by the Federal Government later this year.


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