TPG decision will shake-up Aussie telco sector
TPG's abandoning of its mobile network plans holds two powerful implications for the company and its competitors, particularly Telstra, says Morningstar's Brian Han.
Brian Han: We see two critical implications from the announcement that TPG Telecom has abandoned the rollout of its mobile network. The first is that that it supports our long-held view that it was always very uneconomic for TPG to build this network for around $600 million, especially when you consider that the three incumbents spent about $1 billion each just maintaining their network. So, on top of that, you had a network equipment cost going up. And with the government ban on low-cost provider like Huawei I believe that the economics of this mobile network buildout just became too untenable for TPG.
Now, the second implication is more interesting. Now, we understand why TPG wanted to build this mobile network. It wanted to own and operate its own mobile network so that it provides a pathway to circumvent and bypass the crippling economics of the NBN. That was the reason and we understand that. But when it proposed to merge with Vodafone ACCC late last year actually expressed concerns that because TPG was going to be the fourth player, by us allowing you two to merge it essentially takes away that potential fourth player. Well, now, today's announcement means that that fourth player has decided not to play anymore. And therefore, the main reason, the main concern that the ACCC had towards the proposed TPG and Vodafone merger, it's basically gone. So, what that really means is that even though strategically TPG maybe disappointed to abandon the network rollout, I think competition-wise and merger-wise, I think it significantly increases the likelihood that ACCC may wave this TPG and Vodafone merger through.
And finally, today's announcement is an unequivocal positive Telstra because it means that the Australian mobile market will remain a three-player market and it means that all those market fears about how the fourth player in the form of TPG will take significant market share, especially from Telstra, I think those fears will die down a little going forward.