A price war looms in Australia’s mobile market after internet provider TPG Telecom announced plans to spend $1.
9 billion to build its own network.
The company has spent a hefty $1.26 billion for premium mobile broadband spectrum in a government auction, and will pour another $600 million into the construction of a network that will cover 80 per cent of the population.
Executive chairman David Teoh said the spectrum acquisition is a “tremendous development for the long-term future of TPG”, Australia’s second largest fixed-line internet provider behind Telstra.
“We are uniquely positioned to leverage our success in the Australian fixed-line broadband market to drive the next phase of growth for TPG’s shareholders and bring new competition to the Australian mobile market,” he said.
TPG – which has expanded via a merger with SP Telemedia in 2008 and takeover of iiNet in 2015 – expects significant cross-selling potential from its 1.9 million fixed-line broadband subscribers and 500,0000 mobile customers, who currently use Vodafone Australia’s network.
The company’s move into the mobile market, dominated by Telstra, Optus and Vodafone, unnerved Telstra investors, sending its shares to a four and a half year low of $4.22.
Telstra was not eligible to participate in the latest spectrum auction, while Vodafone secured some spectrum for $286 million.
Optus missed out, with company spokesman Andrew Sheridan citing its “financial discipline” and substantial holding of existing spectrum.
Mr Sheridan said TPG paid a lot of money for the spectrum, with Optus and Telstra paying about $500 million each for the same amount of spectrum in 2013, and for a shorter licence period.
“This has gone for a very substantial price,” Mr Sheridan said.
A Telstra spokesman said the spectrum investments show Australia has a “strong and competitive mobile market” under current regulation.
TPG shares are in a trading halt as the company completes a $400 million capital raising to help fund its spectrum acquisition.
Alvin Lee, senior analyst at research firm Telsyte, expects TPG’s mobile network to increase competition in metropolitan areas.
“There will be extensive competition based on bundling and price,” he said.
Vodafone will take a hit when TPG begins migrating its mobile subscribers to its network in a few years’ time, and Optus could also face similar issues when its wholesale agreement with iiNet expires, Mr Lee said.
TPG said the Australian mobile industry generates earnings of about $8 billion, with the group forecasting its mobile network to breakeven with only 500,000 subscribers, or market share of about two per cent.
The construction of Australia’s fourth mobile network will commence in 2018 and take between two to three years to complete.
TPG is also in the early stages of rolling out a mobile network in Singapore, and has reaffirmed its forecast of underlying earnings between $820 million and $830 million in 2016/17, up from $775 million a year earlier.