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February 25, 2021
An $820 million tax credit for historical tax losses lingering on Vodafone's balance sheet didn't hurt. But to be fair, TPG had to rip out much of its 5G infrastructure and install Nokia antennas, after Canberra barred Huawei from participating in Australia's national 5G rollout.
COVID-19 hammered its pro-forma figures: a standard measure in mergers and acquisitions, comparing post-merger results with simulated ones for the financial year before, had the merger been effective then. Fewer overseas visitors, including students, came to Australia to pay roaming. And the provider shuttered shops during the height of the pandemic and extended relief to customers whose finances were especially hit by the coronavirus.
Pro-forma revenue dropped 6% to $5.5 billion, while pro-forma after-tax profit dipped still more, by 12% to $282 million.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) were hit by $90 million.
Average revenue per user in its post-paid mobile segment fell by 5%, to $40.90, though this was "quite flat versus the market," said CEO Iñaki Berroeta.
Prepaid subscribers dropped 22%, to 1.97 million.
While Australia's National Broadband Network, the largest infrastructure project in the country's history, might offer opportunities down the line, but for now it has hit TPG's margins.
TPG has had to migrate its fixed broadband customers, of whom there are almost 2 million, off DSL (digital subscriber line) technology onto the NBN.
The company has had to shut down its legacy copper networks. All but 115,000 of the DSL customers had shifted over by the end of 2020.
Since the NBN charges high wholesale costs, it's less profitable. The company makes $17 a month per subscriber less for NBN customers than from its own DSL services. This hit TPG's profits by $73 million overall this year.
Other Australian telcos have told a similar story.
Another $10 million of TPG headwinds came from migrating their fixed-voice customers over to NBN services.
On the bright side, TPG brought in 415,000 NBN subscribers this year, slightly more than the 356,000 DSL customers it shed.
Come waltzing 5G with me
What you really want to do if you're TPG, though, is entice NBN subscribers back on to your fixed 5G wireless services.
Every 100,000 customers it can pry off the NBN and over to its own network infrastructure will net it $50 million, estimates the company.
Thankfully TPS is on track to begin offering 5G fixed wireless services in the first half of this year, says Berroeta. It will start by trying to wean off NBN's customers on its lowest speed tiers, such as the 12Mbit/s band.
Meanwhile, NBN plans to fight back against the emerging 5G fixed wireless products, and it is asking regulators for a public speed comparison that it hopes will flatter it.
Looking ahead to its 5G rollout, Berroeta says TPG will offer 5G to 85% of Australia's population by the end of the year, including the capital city of all six states.
Counting the wedding presents
TPG Telecom's merger with Vodafone was announced in August 2018 as a merger of equals.
Vodafone Hutchison Australia was itself the result of a 2009 merger of Vodafone Australia with Hutchison Australia's 3 network.
Berroeta had been at the helm of Vodafone Australia for years, and he and TPG's David Teoh had shared frequent friendly coffees about ways the two operators could work together.
Australia's competition regulator, the Australian Competition and Consumer Commission, initially rejected the join-up, saying the merger would cause price increases in the mobile phone and data markets.
But in February 2020, a Federal Court of Australia ruling gave the merger the go-ahead. It was completed at the end of June.
The merger gives TPG a competitive boost by creating scale, and it also gives the operator more spectrum, argues Berroeta.
But that Vodafone needed the deal is made clear by the fact that financing charges swallowed up every penny of legacy Vodafone's profits in today's earnings.
Given the headwinds from COVID-19 and the NBN, as the merged-up TPG looks hungrily at 5G to reverse its fortunes, a wedding gift from the taxman is no bad thing.
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