Shares in Telstra dropped hard after competitor TPG Telecom announced plans to build its own mobile phone network, Australia’s fourth.
At the close, Telstra was down 7.4% to $4.22.
Billionaire David Teoh’s TPG Telecom today announced it is creating its own mobile phone network after winning a bid for spectrum in the 700MHz band at an auction by the Australian Communications and Media Authority.
The plan will cost about $1.9 billion, made up of $600 million for the network rollout capital over three years and $1.26 billion for the 700 MHz spectrum.
The Australian Communications and Media Authority says TPG paid $1.26 billion and Vodafone Hutchison $285.9 million for 700 MHz spectrum.
TPG will roll out its mobile network over two to three years, with trials in selected areas being in 2018.
The company’s mobile network will cost about $1.9 billion, made up of $600 million for the network rollout capital over three years and $1.26 billion for the 700 MHz spectrum.
The project will be funded through a combination of cash flow and new debt.
TPG today also announced an equity raising of $400 million at $5.25 a share. The shares last traded at $6.66.
“This acquisition of 700MHz spectrum in Australia is a tremendous development for the long-term future of TPG,” says Teoh, the chairman of TPG.
“We are uniquely positioned to leverage our success in the Australian fixed-line broadband market to drive the next phase of growth for TPG’s shareholders and bring new competition to the Australian mobile market.
“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.”
700MHz spectrum is considered premium for mobile networks and means fewer towers are needed to cover larger distances.
TPG sees the opportunity as significant. There are at least 32.6 million mobiles in Australia and growing at 2.6% a year.
And the company says there is significant cross-selling potential from TPG’s 500,000 mobile subscribers and 1.9 million Australian fixed-line broadband subscriber base.
And TPG expects to reach break even EBITDA (earnings before interest, tax, depreciation and amortisation) from its Australian mobile network with only 500,000 subscribers, a market share of just 2%.