Australia's third and fourth largest telecommunications companies, TPG Telecom and Vodafone Group's local subsidiary, have confirmed they will combine in a "proposed merger of equals".

Key points: Telcos TPG and Vodafone are planning to merge and become a $15b company

Telcos TPG and Vodafone are planning to merge and become a $15b company The ACCC has expressed initial concerns about the deal

The ACCC has expressed initial concerns about the deal TPG has a 22pc market share in the broadband market

TPG has a 22pc market share in the broadband market Vodafone has a 19pc market share in the mobile market

However, Vodafone Hutchison Australia will have the majority stake (50.1 per cent), while TPG's stake will be 49.9 per cent.

"The merger will create a more effective challenger to Telstra and Optus," TPG said. It estimates the merged company will be worth $15 billion, with the deal to be finalised next year.

After the merger, the combined entity will re-list on the Australian stock exchange as TPG Telecom Limited.

Vodafone's Australian business is a privately owned joint venture between its British parent company Vodafone Group Plc and Hutchison Telecommunications (Australia) Limited.

TPG and Vodafone have also formed a joint venture named "JVCo" for the purpose of bidding for 5G spectrum as a single entity.

The Government is expected to auction off 125 MHz of 3.6 GHz band spectrum in late November.

The share price of TPG jumped to a two-year high of $9.55 in early trade, after rising 21.2 per cent.

It has since moderated to $9.16 at 2:45pm (AEST), which is a 16.2 per cent increase.

Furthermore, TPG's rival Telstra saw its share price surge 2.9 per cent to $3.23 — which drove the ASX telecommunications sector higher by 3.4 per cent.

Competition concerns

Whether or not the merger proceeds will depend on the companies getting approval from the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board (FIRB).

The competition regulator told the ABC that it is expecting to receive a submission from TPG and Vodafone, which will trigger a 12-week review.

ACCC chairman Rod Sims also expressed some initial concerns about the deal.

"No doubt the merger parties will argue it makes them stronger to compete with Telstra and Optus," he said.

"On the other hand, having four players in the market can be better than three."

"TPG's past behaviour as an aggressive player is important for us."

"Having a new entrant desperate to gain share can offer better deals to consumers."

Mr Sims said his complex task was to essentially "compare a world with and without the merger" — in the mobile, broadband and spectrum markets, as well as wholesale services.

Experts divided on consumer impact

Telco analyst Paul Budde said the merger will reduce competition in the mobile and broadband markets.

"That's where my fear is a little bit ... overall competition will be less."

"TPG is such an excellent price competitor, one of the most efficient mobile operators in the world

"It can offer competitive prices and still be very profitable, which is very unique.

"I'd hate to see the competitiveness of TPG get whittled down when it's merged with Vodafone.

On the other hand, Morningstar analyst Brian Han believes the deal appears to be "good for everyone".

"Mobile prices will always come down ... it's a tough market with intensifying competition".

"It's all about what the companies can do to improve efficiencies and cut costs".

The major telcos have recently shown symptoms of this "tough market" through aggressive cost-cutting measures.

In recent months, Optus has cut 1,040 jobs and shut down its Virgin Mobile subsidiary.

Telstra slashed 8,000 jobs in June, and even had to cut excess data charges as price competition intensifies.

Sorry, this audio has expired TPG and Vodafone to create a 15-billion-dollar merger

Complementary strengths

TPG and Vodafone are worth about $7.5 billion each as separate companies.

Vodafone Australia earned 30 per cent more revenue than TPG in the past financial year — $3.6 billion versus $2.5 billion.

In addition, Vodafone's strength is more in mobile whereas TPG's is in broadband.

TPG reported that it had 1.9 million broadband subscribers, with 22 per cent market share. This is an area in which Vodafone is a minor player.

Vodafone has 6 million mobile subscribers, and has 19 per cent share of the mobile market.

In comparison, TPG said it only has 400,000 mobile subscribers, and its market share is less than 1 per cent.

The board of the merged entity would include directors from both companies.

TPG's chief executive David Teoh, would be the non-executive chairman of the merged group, while Vodafone boss Inaki Berroeta would assume the position of CEO and managing director of the new entity.