TPG’s audacious near-$2 billion move to enter Australia’s $8 billion mobile phone market has sent shockwaves through the industry, with rivals already feeling the pressure.
TPG, which has previously focused on fixed-line communications with broadband and SIM-only mobile plans, announced earlier this week that it’s set to become Australia’s fourth mobile provider, alongside Telstra, Optus and Vodafone.
The near-$2 billion investment comprises acquiring a piece of Australia’s 4G mobile spectrum from the government for a record-breaking $1.26 billion, along with a $600 million investment to roll out cell sites to cover 80% of the local market.
The move signals a major shake-up of the local market, with competitors already feeling the impact. Telstra, the only locally listed telecommunications provider, saw its share price drop to a near-five year low, ending Wednesday at $4.17.
It will likely lead to an all-out price warfare in Australia, with costs set to drop for savvy Australian consumers. TPG is a company known for its low-cost, low-price way of operating, and will likely offer cheap deals early on to gain a market share, placing further pressure on its rivals.
TPG boss David Teoh said the move is a “tremendous development for the long-term future of TPG”, which is seeing its broadband business threatened by the rollout of the National Broadband Network.
With 1.9 million fixed-line broadband subscribers and half a million mobile customers, currently utilising Vodafone’s network, TPG will be able to offer bundled deals to consumers and make use of new technologies without any legacy assets.
“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,” Teoh said in a statement.
“We believe that our mobile strategy will be complementary to our ongoing fixed services expected to have a beneficial effect on our already low fixed services customer chum.”
Teoh said that if TPG’s mobile offering brings on 500,000 Australian customers it will break even, and the company will be using a similar business model to its broadband operations in Australia.
“TPG has had great success over a number of years growing its business and delivering value-leading fixed telecommunications services to Australian consumers. Over this time, we have consistently achieved attractive profit margins due to TPG’s highly efficient low operating cost model and valuable infrastructure,” he said.
“I strongly believe that TPG now has all the ingredients to replicate that success in the exciting mobile telecommunications sector.”
Telstra is the biggest incumbent telco in Australia and has the most to lose with TPG’s foray into the market. The tech giant already has higher prices than its competitors, justified by a better network coverage, but its plummeting stock price shows that investors are already concerned.
It’ll also be damaging for Vodafone when TPG begins to migrate its subscribers to its own network.
TPG will be funding its jump into the mobile market with a $400 million equity issue, with the network rollout is expected to begin next year and its licence running until late 2029.