BANGALORE, INDIA: Ovum had believed for some time that three national mobile network operators was the most likely long term scenario in Australia. The combined scale of this new entity, with the global strengths of Vodafone and Hutchison, would provide the necessary elements for a third strong competitor able to compete and invest long-term in Australian market place.

Nathan Burley, analyst, Ovum, said: "This deal is neither primarily a casualty of the global financial crisis, nor beginning of a 3G exit strategy for Hutchison, although it may raise prospects of more deals between the carriers. Rather, this unique coming together of the third and fourth placed mobile operators in Australia would create a player with enough scale to sustainably compete in the Australian market."

The merger of (near) equals, in a 50:50 joint venture was expected to close by mid-2009 subject to shareholder and regulatory approvals. The combined company would  have over 6 million customers, revenues of ~A$4bn and an Australian mobile market share of 27 percent.

According to the announcement of economies of scale across procurement, product development, IT, network, commercial operations and administrative expenses were expected to deliver NPV net synergies of opex and capex in excess of A$2 billion. Additionally, the combined distribution network with more points of presence would provide significant benefits.

The new operator plans to continue to compete as a value player. As the only focused pure-play mobile operator in Australia, against diversified rivals Telstra and Optus, it must build on the innovation and disruptive strategies of its challenging predecessors.

The operators’ customers bases are largely complementary. 3 Australia had strength in postpaid and non-voice while Vodafone had strength in prepaid. The new entity had plans to adopt the Vodafone brand, transitioning customers away from the 3 brand. Vodafone globally and Hutchison locally from Orange to 3, had been through brand changes before and this experience would prove vital in minimising churn.

Network complexity and challenges ahead

"The merger would not be without challenges. Both Vodafone and Hutchison have existing network joint ventures with the two other mobile competitors in Australia. The new entity has stated that both ventures will continue to run as currently. However, no doubt in order to realise network savings some changes will be required in the medium term," Burley added.

"We believe the Vodafone/Optus joint venture will be simpler to unwind. Since, the 3GIS joint venture between Hutchison and Telstra includes all 2100MHz 3G spectrum and network assets. Vodafone Australia is also currently building 3G/HSPA to 95 percent of the population, based on 900MHz spectrum, while 3 Australia has a roaming agreement with Telstra for 3G services, at 850MHz, to 96 percent of the population," he added.

Company mergers, brand changes, network integration, and duplication removal always create challenges. Both operators, especially 3, had significant momentum in the market, which they would be at pains not to interrupt.

The new operator must execute impeccably, minimising impacts on end-users, to mitigate risks. At a time when both the industry was changing and there weree questions over economic outlook, the global experience and expertise of the two parents would be priceless.