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Merged TPG is set to formally start operations on July 13 with a focus on 5G buildout as it takes on an Australian telco duopoly.
July 10, 2020
The Australian mobile market, for so long a two-horse race, suddenly looks different in the wake of the TPG-Vodafone merger.
The A$15 billion ($10.4 billion) combination of broadband specialist TPG and VHA creates a company with the mass to make a dent in the big two incumbents.
The merged entity formally starts operations on July 13 after a two-year battle which included the Huawei ban, a challenge from the regulator and the difficulties of the pandemic.
The companies are largely complementary: TPG, founded by reclusive entrepreneur David Teoh, is one of Australia's biggest broadband providers, while VHA is itself the result of a merger between Vodafone and Hutchison.
The new TPG Telecom has 5.4 million mobile subs, and mobile revenue last year was A$3.5 billion (US$2.4 billion).
That may appear to be overshadowed by the big two: Telstra counts 18.5 million subs and Optus 10.5 million, with mobile revenue three times and one and a half times that of TPG, respectively.
But the newly merged telco brings a significant 5G spectrum hoard to the game: 223MHz versus Telstra's 238MHz and Optus' 326MHz. That gives it multiple options, from densification to fixed-wireless to private networks.
In a recent interview, incoming CEO Inaki Berroeta stressed that boosting network performance would be a priority, taking advantage of TPG's spectrum and small cells to enhance the legacy Vodafone network.
But the new TPG is entering a sector that has been drained of profit in recent years and with a widely held view on the need for "market repair."
Where the market leader goes, the others will follow, including TPG.
Goldman Sachs analyst Kane Hannan pointed out to financial daily AFR.com that TPG has healthy market share in urban markets such as Sydney and Melbourne and has little incentive to set in train a price war.
He thinks its best strategy will be to "participate in the market repair, stabilize subscriber losses and monetize the significant increase in mobile network capacity."
The other reason for this approach: TPG and rivals have little choice.
Mobile may be in a parlous state but at least it offers growth through 5G. By contrast, the broadband market, where retail operators are selling NBN capacity at razor-thin margins, has nowhere to go.
Berroeta's emphasis on network buildout suggests that TPG will compete on differentiation and innovation, not price.
— Robert Clark, contributing editor, special to Light Reading
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