A $15 billion merger between Australia's third- and fourth-largest telecommunications companies looks set to go ahead after Vodafone and TPG beat the competition watchdog in court.

Key points: Consumer watchdog the Australian Competition and Consumer Commission (ACCC) has lost its bid to block a merger between Vodafone and TPG

Consumer watchdog the Australian Competition and Consumer Commission (ACCC) has lost its bid to block a merger between Vodafone and TPG The ACCC had argued it would substantially lessen competition in Australia's mobile market because it would stop TPG building a fourth mobile network

The ACCC had argued it would substantially lessen competition in Australia's mobile market because it would stop TPG building a fourth mobile network Federal Court judge Justice John Middleton ruled the merger would not unduly reduce competition

The Australian Competition and Consumer Commission (ACCC) opposed the merger in May, arguing it didn't pass the legal test of not "substantially lessening competition" in a market and would further concentrate the already tight Australian telecommunications sphere dominated by Telstra, Optus and Vodafone.

Vodafone challenged the decision in Federal Court and on Thursday, Justice John Middleton told a Melbourne courtroom the merger could go ahead because it would not unduly reduce competition.

"The court has come to the view that the proposed merger would not have the effect, or be likely to have the effect of substantially reducing competition … the merger can proceed," he said.

"It is not necessarily the number of competitors in a relative market, but the quality of that competition."

Justice Middleton, in 254 pages of reasons, found there was no credible hope of TPG rolling out their own network and becoming Australia's fourth mobile network provider.

"It is the rational and businesslike solution for TPG and Vodafone to merge and be a stronger competitive force against Optus and Telstra," he said.

"It is not for the ACCC or this court to engineer a competitive outcome," he added, explaining that it was about whether it would dramatically reduce potential competition.

ACCC chairman Rod Sims said in a statement on Thursday that the consumer watchdog is carefully considering the judgement, which means it could appeal.

ACCC chairman Rod Sims is considering whether to appeal the decision. ( ACCC, file photo )

He said the ACCC still believes TPG has the ability and incentive to overcome technical and commercial challenges to be a fourth player in Australia's mobile network.

"Australian consumers have lost a once-in-a-generation opportunity for stronger competition and cheaper mobile telecommunications services with this merger now allowed to proceed," Mr Sims said.

He said mobile telecommunication services were integral to Australia's social and economic future and that Telstra, Optus and Vodafone already control almost 90 per cent of the market.

"There is clear evidence that consumers pay more when markets are concentrated," Mr Sims said.

"The ACCC's concern was that with this merger, mobile data prices will be higher than they would be otherwise."

Mr Sims said these concerns were reinforced by statements from the industry welcoming the merger and more "rational" pricing.

But Vodafone Hutchison Australia chief executive Iñaki Berroeta said the merger would be good for consumers, because the issue wasn't about the number of players present in Australia's mobile market, but rather the quality of services that a bigger third player could deliver.

"This merger, bringing together TPG and Vodafone ... gives a lot more certainty that there will be a strong 5G player in the market," Mr Berroeta said.

"In the real world it's a matter of having people than can deliver [a] similar level of service or a competing level of service. And that ultimately means more choice for customers."

He said not only would existing Vodafone customers now benefit but that the merged entity would welcome new Telstra customers who were keen to join up.

Vodafone Australia chief executive Inaki Berroeta says the merger will be good for consumers because it means better quality services. ( Supplied: Vodafone Australia )

Industry will continue to 'underserve and overcharge' customers

But Macquarie Telecom chief executive David Tudehope said the decision will worsen the lack of competition.

He said this would mean the industry continues to "underserve and overcharge customers".

"Now that the decision has been made to allow the merger to go ahead, the Government and ACCC will need to reconsider how to improve retail and wholesale competition in mobiles," he said.

"The telco industry gets twice the number of complaints to the Telecommunications Industry Ombudsman (TIO) as the banking industry's Australian Financial Complaints Authority (AFCA), its new ombudsman, even after the royal commission.

"As a result, the telco industry risks losing its social licence."

The ACCC raised concerns about the potential merger when it was announced in December 2018, saying consumers could end up "paying higher prices" for "less innovative" mobile services.

Its formal opposition in May caused the share price of TPG — which owns the iiNet and internode brands — to crash.

Despite the loss, the ACCC has proven that dragging companies to court keeps business behaving better.

The consumer watchdog is also taking on Samsung —for allegedly misleading consumers about the water-resistance of its phones — and aged care provider Bupa for allegedly charging thousands of residents at 21 aged care homes across the country a fee for a package of extra, and often expensive, services that it did not provide or only partly provided.

Mr Sims said the ACCC is successful in more than 80 per cent of the consumer and competition law cases it brings.

He said the watchdog opposes mergers in a range of markets every year, with very few such decisions challenged in court.

"We will continue to oppose mergers that we believe will substantially lessen competition, because it's our job to protect competition and, in doing so, ensure that Australian consumers enjoy the benefits of competition," Mr Sims said.

"We stand by our decision to oppose this merger.

"If the ACCC won 100 per cent of the cases we took it would be a sign we weren't doing our job properly; by only picking 'safe' cases and not standing up for what we believe in."

King & Wood Mallesons competition law partner Sharon Henrick said the ACCC has 28 days to appeal, and can only do so based on error of law, which would be challenging given this is a very fact-based case.

She said the ACCC will not change its view on what constitutes a 'substantial lessening' of competition, especially where the number of competitors in a market would drop.

"We'd expect the ACCC to use the loss as part of its platform reform or merger laws and/or review processes," Ms Henrick said.

The court case had also brought rare focus on Australia's most reclusive billionaire, TPG Telecom's executive chairman, David Teoh.

Mr Teoh had been rarely seen, let alone photographed, before he was forced to appear as a witness in the case.

In a statement to the ASX Mr Teoh said TPG was working with Vodafone to complete the merger transaction as soon as possible.

Subject to approvals, it is anticipated that the merger will be completed in mid-2020.

"TPG is very pleased with the Federal Court decision and looks forward to combining with VHA to create Australia's newest fully integrated telecommunications operator," Mr Teoh said.