By Tom Westbrook
SYDNEY (Reuters) - Australia's TPG Telecom Ltd (AX:TPM) said on Wednesday it was looking into a merger deal with rival Vodafone , a move that could provide a faster and cheaper entry into the mobile network market while tempering competition in the cut-throat industry.
News of the talks sent TPG's shares soaring 10 percent to a 17-month high.
TPG and Vodafone Group PLC's (L:VOD) local venture said in separate statements they had engaged in "exploratory" talks, while offering no details including whether a deal would represent a takeover by either party.
"There is no certainty that any transaction will eventuate or what the terms of a transaction would be," TPG said, while Vodafone called the talks "non-binding".
But the news was enough for investors to envisage a drastic reshaping of TPG's strategy to enter the Australian mobile market with billions of dollars in spending to roll out its own network infrastructure.
"I think the reason the market reacted positively is they see that TPG doesn't have to spend an enormous amount of money in building a network; they can just utilise the Vodafone network," said telecommunications analyst Paul Budde, who runs his own consultancy.
Shares in Hutchison Telecommunications (Australia) (AX:HTA), which owns half of Vodafone Australia, rose 7 percent to a 9-month high even as the broader market (AXJO) edged lower.
Budde added that a deal could give Vodafone access to new customers, while rivals such as Telstra (AX:TLS) and Optus "will feel relieved" since a combination would spare them extra competition.
"It looks to me that the entry of TPG in the market will now be significantly less aggressive than if they would have done it on their own," he said.
TPG's announcement last April that it had paid A$1.3 billion to buy a mobile spectrum and that it planned to build a network sent a shockwave through an industry already under huge margin pressure.
Telstra shares, which had plunged then, leapt 3.6 percent to a fourth-month high on Wednesday.
($1 = 1.3669 Australian dollars)