TPG Telecom enters the mobile network market, Telstra shares drop

A woman looks at her phone as she walks past an advertisement for Australia's TPG Telecom Ltd in central Sydney, Australia, April 12, 2017. Reuters/Steven Saphore

TPG Telecom has entered the mobile network market in Australia after securing premium spectrum in the 700 MHz band at a government auction. The move made by the internet provider affected Telstra shares, dropping to nearly seven percent.

It planned to roll out a new 4G mobile network over three years to about 80 percent of the country's population. The company said it would spend $600 million for the project. The rollout would begin in 2018 and the license would run from April 2018 until late 2029. It would spend $1.2 billion for the mobile airspace and it would sell $400 million of new shares, loans and operating cash flow for the rollout.

"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,” TPG executive chairman and chief executive David Teoh said. The CEO said that the acquisition of the mobile airspace would be a tremendous development for the company's future. The company ranks as the second biggest fixed-line internet provider behind Telstra.

The company was confident that it would benefit from its new entrant status because it would use 4G mobile technology in its network. The technology that the company would use is the most advanced mobile broadband technology that would need fewer mobile towers. It also predicted that it could break-even on a before-tax earnings for its mobile network that would be launched to half a million subscribers.

Independent telecommunications consultant Paul Budde said that TPG would shake up the telecommunications industry as it would significantly increase the competition. He said that the new products to be released would be competitive. Budde said that customer service was another factor that the company would be competing as it was the weak point for the telecommunications company in the country. He added that he was expecting that Telstra would be hurt by the fourth player but it was not necessary that it would cut their dividend payout to investors.

Australian Communications and Media Authority (ACMA) conducted the airspace auction that reaped $1.5 billion. It exceeded the reserve price at around $857 million. Acting ACMA chairman Richard Bean said that the digital dividend spectrum brought an important chapter in the Australian economic reform. He said that it would help the industry to meet the ever-increasing demand for the high-speed wireless broadband.