TPG Telecom finally admitted to its long rumoured plan to build a mobile phone network, news that wiped billions of dollars off the value of rivals such as Telstra, Vocus and Macquarie Telecom.
Telstra dropped as much as 8.6% – losing nearly $5 billion in market value at one stage yesterday before the ended down 7.4% at $4.22 as investors nominated it as the major loser from TPG’s move. That was lowest close since 2012.
Vocus shares lost 5.6% (ending at a three year low) and Macquarie Telecom shares eased 1.2% as the market digested the news about TPG and its plans to raise $400 million in a share issue to finance its purchase of spectrum for the phone service and its new mobile service which TPG says will cover 80% of the Australian population.
Telstra was not allowed to bid in the government auction because of its dominant market position.
It is yet another blow for Telstra which has seen its shares slide from a high of $6.73 in February 2015 as a series of technical problems with its network, management changes, and now growing fears about the damage a rival mobile service from TPG would do.
Analysts say there is a growing possibility that Telstra will be forced to cut its 31 cents a share final dividend to finance the cost of remaining competitive in any battle with TPG, Optus and Vodafone.
TPG paid $1.26 billion for a slice of the 4G mobile spectrum in the by the Federal regulator, ACMA.
The company, which currently buys network access for its mobile products from Vodafone, will spend $600 million over three years building the network. All up the cost will be closer to $2 billion.
Chief executive David Teoh said TPG would leverage its successful fixed-line broadband business to bring new competition to the mobile market.
“We believe that our mobile strategy will be complementary to our ongoing fixed-line business, with the ability to bundle mobile and fixed services expected to have a beneficial effect on our already low fixed services customer churn,” Mr Teoh said in a statement.
The federal government gained a total of $1.5 billion by selling off a chunk of 4G mobile spectrum left over from a previous sale in 2013.
The Australian Communications and Media Authority said the auction generated $1.5 billion, it well beyond the reserve price of $857 million.
The 700 MHz spectrum is left over from the 2013 Digital Dividend auction, which generated $2 billion for the government. (The spectrum became available after television networks switched from analog to digital signals).
It is the second big move TPG has made in mobiles in four months. Last December, the company spent $98 million buying spectrum in Singapore in the country’s New Entrant Spectrum auction.
As a result TPG will spend up to $281 million rolling out a nationwide network in the next two years, an ambitious target given what is now on its menu in Australia.
How long before the analysts start wondering if TPG might have bitten off more business than it can handle. Building two networks is harder than building one (obviously), but building one in Singapore and Australia is a bigger ask.
