ACCC warns of higher prices and less service under TPG-iiNet deal

The Australian competition watchdog has warned that TPG's proposed acquisition of rival ISP iiNet could lead to higher prices, less competition and a sliding standard of customer service.

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iiNet could soon be in the hands of TPG. Screenshot by Claire Reilly/CNET

Australia's competition regulator has warned that TPG's acquisition of rival internet service provider iiNet could lead to higher prices for consumers, a reduction in customer service and a "substantial lessening of competition."

The comments come as the Australian Competition and Consumer Commission conducts a review into the proposed acquisition, releasing a Statement of Issues on the matter and calling for public comment from "interested parties" before announcing a final view on the issue by August.

TPG made a bid for iiNet in March this year, in a deal worth AU$1.4 billion. However, after iiNet's founder slammed the deal as a bad move for shareholders and customers, rival ISP M2 Group (owner of Dodo) swooped in with a combined cash and shares deal worth AU$2.25 billion. TPG later upped its offer garnering a final vote of confidence from the iiNet board.

While the ACCC says there are no major concerns about reduced competition in mobile broadband, voice services or wholesale transmission (or backhaul) under the deal, the watchdog has raised concerns about potential problems in the fixed broadband market.

ACCC chairman Rod Sims also noted consumers had already raised concerns about sliding service standards at iiNet, should the ISP come under the umbrella of TPG.

"The proposed acquisition would combine two of the five largest suppliers of fixed broadband in Australia," he said. "The ACCC is exploring the extent to which the acquisition of iiNet will reduce competition by reducing the likely competitive tensions in respect of pricing, innovation and service quality.

"The ACCC has received a number of submissions from consumers. Their concerns primarily focus upon fears that iiNet's customer service levels will decline as a result of the proposed acquisition."

In its Statement of Issues on the acquisition, the ACCC described iiNet as "an important competitor" in the fixed broadband market with "a particular focus on customer service."

"The ACCC's preliminary view is that the acquisition of iiNet may lead to a substantial lessening of competition, potentially resulting in higher prices and/or degradation of the non-price offers available in the market, including customer service."

As part of the public comment process, the ACCC will also investigate whether other major ISPs, including Telstra, Optus, M2 (owner of Dodo) and other smaller players, could pose "constraints" on a competitive market for consumers.

"As a general proposition, competition is stronger when the market contains more competitors," said ACCC Chairman Rod Sims.

Public submissions on TPG's acquisition of iiNet will be open until July 2, 2015, with the ACCC expected to announce its "final view" on the matter by August 20.