Telecommunications giant TPG is set to invest $1.9 billion into the Australian mobile phone market, announcing it will build its own 4G mobile network.
TPG had previously offered mobile phone plans through a partnership with Vodafone, but will now strike out on its own, investing $600 million in rolling out a network to 80% of Australians in the next three years.
Additionally, the telco will spend $1.26 billion for its license on the 4G 700MHz spectrum, which will last until 2029.
In a statement, TPG chairman David Teoh says the company’s successful bid for the mobile spectrum is a “tremendous development” for the future of the company.
“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,” he said.
TPG’s move will mean Australians will have four mobile service providers to choose from. This is a scenario that has not occurred since before Vodafone and Three merged in 2009.
Managing director at telecommunications consultancy Telsyte Foad Fadaghi told SmartCompany this morning he believes TPG’s entrance into the market would be a boon for consumers.
“This means there’s going to be price competition and many more options for consumers going forward. The market will likely get much more competitive, with more bundling and more carriers looking to expand their portfolio,” Fadaghi says.
In a presentation to investors, TPG states it will be looking to leverage its late entrance into the market as an advantage and employ “aggressive” pricing.
“There are also numerous ‘new entrant advantages’ that TPG will be able to enjoy, including being able to deploy current advanced technology, the rollout of fewer sites, and not needing to support legacy equipment (for 2G/3G networks),” the company wrote.
Fadaghi believes while rolling out just a 4G network is more cost-effective, he highlights the amount paid by TPG for its “lease” of the spectrum is much higher than the amount paid by Telstra or Optus.
“Any savings in regard to the network type have lost some benefit, as TPG’s price is some factor higher than what Telstra an Optus paid a while ago,” he says.
“Also, the time period in which the spectrum has been leased is shorter than the other telecommunication companies got on their licenses.”
TPG’s move to “absolutely” affect pricing
In 2013, Optus paid $649 million for a lease of both 700MHz and 2.5 GHz bands until 2029. Telstra paid $1.3 billion but received a larger slice of the band than TPG secured, locking down a total of 40 MHz, while TPG only received a total of 20 MHz.
Regardless, Fadaghi says TPG’s move will “absolutely” affect pricing, saying the response from other telcos will be to match TPG’s “aggressive” prices.
“For TPG now it’s about owning the infrastructure and providing the customer with more value bundles,” he says.
With a new player in the space, Fadaghi questions if the Australian market can support four carriers, viewing the fate of Three as a sign of what may happen in the future.
“It’s not inconceivable there might be some merger and acquisition activity, but we can’t easily speculate on that. I’m not sure if the market can sustain four carriers,” he says.
“TPG’s network isn’t tested yet, and not all networks are the same. We’ll have to see the quality of the network and its coverage to see how relevant it will be for the marketplace.”
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