The ACCC will decide next week whether to allow Vodafone or SingTel’s bids for Optus.

The Australian Competition and Consumer Commission (ACCC) has said it will decide next week which of the two serious bids for telco Cable & Wireless Optus it will permit. Singapore’s SingTel wants to buy the operator and keep it integrated, whilst Vodafone wants to split it up, keeping most of the mobile business and selling the rest of the company.

Vodafone has told the ACCC that if SingTel buys Optus, it will be forced to break up the company within a few years. It says Optus will need US$4.9 billion of capital over the next four years, which SingTel would have difficulty raising, as its 2000 sales were just $2.83 billion. The submission is more a negotiation tactic than a true assessment of SingTel’s future – Vodafone is trying to persuade the ACCC that Optus will get broken up even if SingTel’s bid wins. But why should the ACCC have any interest in preserving Optus as an integrated operator?

The answer seems to be that the ACCC sees Optus as the only major challenger to dominant telco, Telstra. While a Vodafone-owned Optus would put up a serious fight in the mobile operator market, the remaining parts of the operation would no longer be in a position to compete so strongly.

Yet firms specialized in one particular area, such as Vodafone in mobile, AOL in the Internet space and NTL in consumer landline telephony, tend to provide more effective competition for incumbents than integrated rivals. Indeed, most major integrated operators including AT&T, France Telecom and BT have themselves either floated mobile or Internet operations as separate firms or plan to do so. Landline telephony, mobile devices and Internet services are marketed and delivered to completely different groups of customers in completely different ways, while even at a network level the economies of scale from combining networks are limited.

Maybe if the ACCC is truly concerned about Telstra’s monopoly position, it should break the dominant firm up rather than tinkering with Optus.