Telstra shares have sank to their lowest level in five years on news that broadband provider TPG would build Australia’s fourth mobile network.
While incumbent mobile providers Telstra, Optus and Vodafone all said they would welcome the extra competition, investors fled and analysts warned of a price war that would hurt returns.
TPG results beats expectations
Telecommunications company TPG reports a net profit of $224 million in the six months to the end of January. (Courtesy ABC News 24)
Telstra fell as much as 8.5 per cent in early trade to their lowest price since December 2012, and closed down 34¢ at $4.22 or about 7.5 per cent. Shares in Singtel, the Singaporean company that owns Optus, fell almost 2 per cent.
TPG on Wednesday announced plans for its own network after securing a slice of 4G mobile spectrum in a government auction at a cost of $1.26 billion.
The company said it would spend another $600 million building the network, with $400 million of the total cost covered through a share entitlement offer.
TPG, which currently buys network access for its mobile products from Vodafone, said its network would cover 80 per cent of the population.
Morningstar telecommunications analyst Dan Baker said TPG’s entrance to the market could only be a negative for the existing players, which would be forced to sacrifice earnings. Vodafone would likely be the hardest hit because of its price sensitive customer base.
Telstra fell as much as 8.5 per cent in early trade. Photo: Peter Braig
“TPG have a reputation for being a pretty low price operators and that’s probably the way they will go with their mobile network,” he said.
“You’d have to think that based on their track record in fixed-line broadband that they could be reasonably successful in this.
“I’m sure [incumbent providers] will probably let them go with the cheap prices for a while but they’ll have to respond eventually”.
Optus, Vodafone and TPG all participated in the auction, leading to a three-way fight for the 700 spectrum. Photo: Glenn Hunt
Mr Sheridan said TPG would need more than just its spectrum to compete in the market.
“Spectrum is just one building block – you’ve got to build services and billing and customer care services over those, and also quite importantly for mobile, you need a retail store footprint as well,” he said.
Stepping up the heat in mobile market: TPG chief executive David Teoh. Photo: Daniel Munoz
ACCC call looms
Attention will now turn to the Australian Consumer and Competition Commission’s looming decision over whether it should force Telstra to share its regional network with competitors.
Telstra was quick to paint TPG’s expansion as proof there was no need for the ACCC to intervene in the market.
“These investments in spectrum show Australia has a strong and competitive mobile market under the current regulatory settings and reinforce why there is absolutely no case for regulated roaming,” a Telstra spokesman said.
Telstra was not allowed to bid in the auction because it purchased significant amounts of 700 megahertz spectrum in an auction four years ago.
Vodafone also secured a slice of the spectrum for $285.9 million, the Australian Communications and Media Authority announced on Wednesday.
The combined $1.5 billion sale price was well beyond the government’s reserve price of $857 million.
Optus came away from the auction empty handed, with its head of interconnect and economic regulations Andrew Sheridan saying the company was not willing to obtain new spectrum “at any price”.