TPG axes plans to launch mobile network after government bans Huawei from 5G

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TPG Telecom executive chairman David Teoh has called it quits for the telecommunications company’s plans to launch Australia’s fourth mobile network, blaming the government’s ban on provider Huawei taking part in future ultra-fast 5G networks.

In an announcement to the Australian Stock Exchange on Tuesday morning, TPG said the principal vendor selected for use in the small-cell network was Huawei and the government’s decision to ban Chinese providers from supplying 5G networks has meant it “does not make commercial sense” to continue.

“A key reason for the selection of the vendor and the design of TPG’s network was that there was a simple upgrade path to 5G, using Huawei equipment,” TPG’s announcement said.

“In light of the Government’s announcement in late August 2018 that it would prohibit the use of Huawei equipment in 5G networks, that upgrade path has now been blocked.”

TPG had used Huawei equipment since announcing the launch of the country’s fourth network in April 2017. There has been rampant speculation since then about whether Mr Teoh could build the low-cost network within the budget he expected with major headwinds facing the telco.

The government banned suppliers like Huawei in August from participating in 5G on security grounds as the new networks are expected to increasingly connect critical infrastructure. This was widely expected to increase costs for telcos, with Mr Teoh flagging “pressure on prices” as a result of the decision.

Huawei is the world’s largest telco equipment manufacturer.

Huawei has faced worldwide scrutiny, particularly from ‘Five Eyes’ countries (a cybersecurity alliance including Australia, New Zealand, the US, UK and Canada). New Zealand imposed a ban last year, while the US Justice Department has accused Huawei’s chief financial officer Sabrina Meng Wanzhou and the company of bank and wire fraud and conspiring to steal trade secrets.

Since the government revealed the ban, TPG said it had continued to roll out equipment ordered from Huawei beforehand but had since reached a point where further orders needed to be decided on.

While TPG had explored if there were any other “solutions available to address the problem created by the Huawei ban” it decided it was not commercially viable to further invest shareholder funds in a network that couldn’t be upgraded to 5G. To date, TPG has invested $100 million in capital expenditure with another $30 million committed in rolling out a mobile network. Equipment had been bought for 1500 sites with 900 small cells completely or partially completed.

The decision comes after the competition watchdog delayed making a decision on whether to step in the way of a merger between TPG and Vodafone Hutchison Australia. One of the major issues being closely considered by the regulator is a potential competitive issue with Vodafone already operating a mobile network and TPG building a new one.

Mr Teoh said in a statement it was “extremely disappointing that the clear strategy the company had to become a mobile network operator at the forefront of 5G has been undone by factors outside of TPG’s control”.

“Over the past two years a huge amount of time and resource has been invested in creating and delivering on a strategy that would have positioned TPG very favourably to exploit the opportunities that the advent of 5G will present,” he said.

“While TPG remains committed to the planned merger with Vodafone Hutchison Australia, the Company must continue to make independent business decisions in the best interests of TPG shareholders pending the outcome of the merger process.”

TPG does not expect a write down or any impact on fiscal 2019 guidance. TPG declined to comment on its plans for TPG’s spectrum holdings.

This article originally appeared on the Sydney Morning Herald’s Business Day. Read the original here, or follow Business Day on Facebook.

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