As reported on Rask Media earlier today TPG Telecom Ltd (ASX: TPM) announced this morning they have decided to cease the rollout of their mobile network in Australia.
At face value, this would appear to be good news for Telstra Corporation Ltd (ASX: TLS) and their shareholders. Telstra shares were up as high as 5% in trade today backing that sentiment up. But, TPG shares were also up as much as 4% in trade today.
Is TPG Really Cancelling Its Mobile Network?
TPG chose the use of Huawei equipment for the simple upgrade path from 4G to 5G. With the government decision to prohibit the use of Huawei equipment back in August 2018, this announcement today seems a little belated on behalf of TPG.
With TPG having committed over $1.2 billion for 4G mobile spectrum, plus a further ~$131 million in a joint venture with Vodafone for 5G mobile spectrum, it’s unlikely it has ditched plans entirely for a mobile network in Australia. It probably just means they are putting all their eggs in the proposed merger with Vodafone.
The ACCC Decision Looms…
With the ACCC decision on a merger between TPG and Vodafone due to be handed down on 28 March 2019, it could be a cautious move on behalf of TPG while waiting for the decision.
If the ACCC was to forbid the merger, it would be very difficult for TPG to compete in the mobile space on its own. Rather than waste any more money on capital expenditure, we could see TPG pull the plug and potentially sell their spectrum to another party such as Vodafone.
It could also be a move to signal TPG’s strategic intentions to the ACCC. That is, TPG will only commit to building a mobile network under a merger with Vodafone.
What Does The Future For TPG Hold?
As I have previously said, the merger between TPG and Vodafone makes sense. It is complementary and they both need the merger to compete viably in the mobile space with the likes of Telstra. I think this is TPG’s way of sending a strong and clear message to the ACCC that a merger is the only way it can enter and survive the mobile space.
Given 5G mobile promises speeds faster than the NBN, the future of the Internet lays mainly within the mobile space. TPG must find a way to enter the mobile space one way or another if it wants to survive long-term as their residential broadband connections will eventually become an obsolete service.
My view on TPG remains unchanged, I am still happy to sit on the sidelines and watch as a spectator while enjoying the benefits of lower prices on Telstra’s mobile network.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).