TPG says 5G is a must but the federal government's ban on Huawei 'puts pressure on prices'

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TPG Telecom chief executive David Teoh expects the government’s ban on Chinese involvement in the construction of Australia’s new 5G network will put pressure on prices, but declined to confirm how it would affect his mobile network budget.

Mr Teoh told Fairfax Media he was “still waiting” for details from the government about the specific rules around the security-focused ban on equipment providers such as Huawei participating in building 5G networks.

For this reason, he declined to say whether his expected modest $600 million spend on building Australia’s fourth mobile network would need to be increased should plans for a $15 billion merger with Vodafone Hutchison Australia not go ahead.

TPG posted a net profit of $396.9 million for the year to July 31, down 4.1 per cent over the year on a reported basis. On an underlying basis, earnings were up $6.1 million to $841.1 million as the previous year included a $55.8 million non-recurring profit from the sale of investments.

“We are waiting … we still have nothing from the government. We need to know the rules, what are the boundaries and so on,” Mr Teoh told Fairfax Media. “We are using multiple vendors at this moment,” he said, noting the core of the network (considered to be the “brains”) was non-Huawei while the “edge” was in part Huawei technology.

He noted with “not many suppliers in the marketplace”, taking out a major player “puts pressure on prices”.

“We’re excited about the 5G opportunity in the long-term … 5G is a must for us,” Mr Teoh said.

A new Deloitte report to be released on Wednesday at Telstra’s Vantage event shows 80 per cent of businesses with 200 or more employees expect to be using 5G by 2020, along with 62 per cent of those with fewer than 19 employees. About half of the 550 businesses surveyed were willing to spend 10 per cent more for faster telecommunications.

Telstra boss Andy Penn said in a statement 5G would help contribute to economic growth with increased productivity and business opportunities, noting it is estimated to be a $32 billion to $50 billion economic opportunity.

“Australia needs an ambitious agenda to fast track the adoption of 5G and make the sophistication and reach of our wireless networks a competitive advantage in the global economy,” Mr Penn said.

After dipping earlier in the day TPG’s share price closed unchanged at $8.72.

Huawei, which is the world’s largest maker of telecommunications network equipment and provides equipment for current 4G networks, had expressed its interest in building Australia’s 5G infrastructure. But the government last month banned “vendors who are likely to be subject to extrajudicial directions from a foreign government”, in effect ruling out companies such as Huawei and ZTE.

That leaves the Finnish and Swedish multinationals Nokia and Ericsson as the most likely developers of 5G technologies adopted by Australian telcos, potentially raising concerns of higher costs.

TPG and Vodafone plan to merge to better compete with Telstra and Singtel Optus, announced in August, is still awaiting regulatory approval and shareholder agreement.

In 2019, TPG is forecasting growth in earnings before interest, tax, depreciation and amortisation from standard business operations.

However, there would be some “headwinds” as households continue to migrate to the NBN and a reduction in earnings due to a new accounting standard, leaving guidance at $800 million to $820 million. This compares to $841.1 million for 2018.A dividend of 2¢ a share, fully franked, is payable on November 20.

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

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