The TPG Telecom Ltd (ASX: TPG) share price is in focus after the regional network sharing agreement with Optus was approved.
TPG is the parent company with a number of different telco brands including Vodafone, TPG, iiNet, Internode, Lebara, AAPT and Felix.
TPG-Optus network sharing approved
It has been announced today by the Australian Competition & Consumer Commission (ACCC) that it will not oppose the network and spectrum sharing agreement.
In the regional coverage areas, Optus will use some of TPG’s spectrum to supply mobile services, and Optus will provide TPG with network services. TPG will decommission most of its sites in the coverage area, while some will be transferred to Optus.
TPG will gain access to 2,444 regional Optus sites, taking TPG’s network coverage to 98.4% of the Australian population.
TPG and Optus will continue to operate their own mobile networks in metropolitan areas where 81.6% of Australia’s population live.
The ACCC concluded that the agreements are “unlikely to substantially lessen competition”. In-fact, the ACCC thinks this will allow TPG to better compete and improve choice for regional customers. It could also support Optus’ 5G regional rollout, particularly through access to TPG’s spectrum.
But, the ACCC said it would continue to monitor the situation as part of its telecommunications functions.
When launched, TPG will deliver 4G and 5G services to “thousands of new places and towns”.
Management comments
TPG Telecom CEO, Iñaki Berroeta, said:
The expansion of our regional mobile network will drive growth in our customer base in regional and metropolitan areas. It will allow us to win and retain customers in the cities who need reliable mobile service when they travel to the bush and customers in the regional areas looking for a different choice of provider.
By sharing costs and network assets, we can bring coverage benefits to customers at a fraction of the cost of duplicating infrastructure. This will allow us to reduce rollout and operating costs, make better use of our network assets and deliver huge public benefits.
Costs
TPG said its total estimated payments to Optus amounts to approximately $1.17 billion over the 11-year term, representing around one third of the costs TPG estimates it would take to build, operate and maintain a similar network in regional Australia.
For FY24, TPG expects to recognise between $230 million to $250 million of accounting charges related to the 755 total network sites to be decommissioned.
In FY25, TPG expects a negative EBITDA impact of approximately $55 billion to $65 million, including fees to Optus, operating expense savings, spectrum receipts from Optus and higher ‘go-to-market’ expenses. This will be offset on a cash basis with a $50 million reduction in capital expenditure requirements.
A negative net profit impact of between approximately $10 million to $20 million in FY25.
On the whole, I think TPG can offer customers a better service and this could help the business win customers. Will it win enough new consumers to make this agreement worthwhile? Time will tell. It’s a stable business, which may appeal to some investors, but I’d rather buy plenty of other ASX dividend shares over TPG shares.
