TPG admits network wouldn't have run iPhone features
TPG Telecom was planning to target students with a super-cheap mobile product that would not have been fully functional on Apple devices, the Federal Court has heard.
Craig Levy, TPG's chief operating officer, said the company's $9.99 a month "unlimited" data mobile plans also would not have supported native voice and text functions.
In the first day of the second week of hearings, in which TPG and Vodafone are challenging the Australian Competition and Consumer Commission's decision to block the $15 billion merger of the two companies, Mr Levy was grilled on TPG's precise plans for its unfinished mobile network.
Mr Levy, under cross-examination by Michael Hodge QC, painted a picture of a network that was extremely limited in geographic reach and functionality, but that made up for those limits in price and data inclusions.
Very generous
The ACCC believes the merger will make the mobile market less competitive because it will prevent TPG from launching these disruptive products, which would be targeted at "price sensitive" customers.
Mr Levy said TPG would "need to make the offer very generous on the data side" to compensate for these limitations. The original plans would have given users 1 gigabit per day of data at the fastest speeds available, reverting to slower speeds after that. TPG called this an "unlimited" data plan.
“What I discussed with Mr Teoh was we were giving a large amount of data – more than people were used to – at a price point that people were not used to. In other words we wanted to create a stir in the market," he said.
“We needed to make sure that we were doing it with no lock-in contract. We needed to make sure it was priced at a price point we knew would work for TPG. And we needed to be sure the amount of data was more than what was generally available at that price point in the marketplace.”
It is understood some of the Apple features that would not have worked on TPG's network include FaceTime and iMessage.
Earlier in the day, the court heard Vodafone Australia's two shareholders, CK Hutchison and Vodafone Group, would rely on dividend payments from a merged TPG-Vodafone to service $US3.5 billion in debt that would be taken off Vodafone's books ahead of the merger. The removal of the debt was a key condition of the merger as it would bring both merging parties into a broadly equal debt position, and improve the merged company's ability to raise capital.
Interest and confusion
The disappearing debt has been the subject of interest and confusion among analysts and media, and on Monday CK Hutchison group finance director Frank Sixt was grilled over what would happen to that debt.
Mr Sixt said the hope was ultimately for the merger to create enough additional value to repay the debt.
“To actually repay the full debt really requires value be created in the TPG shares, and at some point that value to be realised," he said. "We assumed that the interest payments would be covered.”
Mr Sixt said CK Hutchison would "not have supported the merger if the dividends couldn’t pay the interest debt".
He conceded that if the merged company was not able to service or repay the debt, that could affect CK Hutchison's credit rating, but said that was an extreme case.
He conceded that off-balance-sheet debt could be "controversial" because it "can mean hiding debt”. But he insisted that was not happening in this case.
'More stressful'
Mr Sixt rejected the suggestion that it would cost the same for Vodafone Australia to roll out a 5G network outside the merger with TPG, saying: “I would respectfully disagree, simply because the impact is far more stressful to VHA on a standalone basis than it is [for the merged business]."
He said synergies from the merger would allow it to find $4 billion to $5 billion of efficiencies "that would not be achievable on a standalone basis".
Questioned on the debt restructure, UK-based Vodafone Group's chief executive for Africa, Middle East, and Asia Pacific Vivek Badrineth said: “What was important to Vodafone Group was to enable the company to raise funds while not damaging its ability to repay interest and potentially retire debt."
Mr Badrineth was grilled on Vodafone Group's sensitivity to brand damage done by network issues such as those suffered in the "Vodafail" saga early in the decade. Mr Badrineth said Vodafone Group would have a director on the board of the merged company, and that director would "certainly be raising matters or concerns regarding the quality of service".
