TPG Telecom Set to Challenge with New Mobile Network -- Update

   By Robb M. Stewart 
 

MELBOURNE, Australia--TPG Telecom Ltd. (TPM.AU) will invest more than US$1 billion taking on Australia's incumbent mobile telecoms operators with plans for its own network that will target a large swathe of the country.

The communications firm had for some time flagged its ambition to become Australia's fourth network operator, responding to the increasing shift by consumers to mobile devices and competition from other companies reselling capacity on the government-built National Broadband Network being rolled out countrywide.

The fiber network that is now the core of TPG's fixed-line telecommunications business will be the cornerstone of its national mobile network, and allow it build out the new network in a cost-efficient manner, the company said.

"This is a significant investment for the group but one that I expect to be fantastic for our long-term outlook," said David Teoh, chairman and chief executive of TPG.

TPG and existing operator Vodafone Hutchison Australia were successful bidders in an auction of unallocated mobile bandwidth by the federal government, collectively spending 1.55 billion Australian dollars (US$1.16 billion) on spectrum used in current fourth-generation networks. TPG picked up two lots of 10 megahertz in the 700 MHz spectrum for A$1.26 billion. Singapore Telecommunications Ltd.-owned (Z74.SG) Optus, another incumbent, lost out in the auction.

TPG said the spectrum would be paid for in three annual instalments. Another A$600 million would be spent over the three years to build a mobile network focused on densely-populated areas and using current technology, it said.

The mobile licenses are set to begin in April 2018 and run through the end of 2029. TPG said it expected its network would be break-even at an earnings before interest, tax, depreciation and amortization level with 500,000 subscribers.

The investment would be funded through operating cash flows, borrowing and other options, it said. It also would seek to raise A$400 million to pay down debt with an offer of new shares at a sharp discount to the last traded price.

Mr. Teoh said TPG has a number of new-entrant advantages over current operators, which include the largest operator Telstra Corp. (TLS.AU), such as its brand and existing fixed-line customer base. It expected to bundle mobile and fixed services, he added.

Last August, TPG expressed an interest in the government spectrum auction, having previously invested in 1,800-megahertz bandwidth. However, some analysts have pointed to the risk the investment needed to build a network would weigh on profits for several years. Analysts have also been wary of TPG's purchase of mobile spectrum in Singapore.

Since it was founded in 1986 as Total Peripherals Group, TPG has expanded rapidly and picked up a number of rivals, including iiNet in 2015. It now offers a range of services to retail and business customers, including broadband, fixed-line telephone and mobile access via Vodafone's network.

-Rob Taylor in Canberra contributed to this article.

Write to Robb M. Stewart at [e-mail]

(END) Dow Jones Newswires

April 11, 2017 21:24 ET (01:24 GMT)

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