TPG is expected to shift its price war to mobile when it builds its own network

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The $1.9 billion plan by TPG Telecom for a fourth mobile phone network is a credit negative for Telstra, Optus and Vodafone, says Moody’s.

The ratings agency says the smaller player has a significant opportunity to be a low-cost disruptor in the same way as it has in the fixed broadband internet market.

In the latest issue of Moody’s Credit Outlook, Moody’s says TPG’s pricing will likely be a game changer for Australia’s three incumbent operators.

“TPG can compete for subscribers on price because, unlike incumbents, it has no existing customer base ARPU (average revenue per user) to protect,” writes Ian Chitterer, a Moody’s vice president.

“Additionally, TPG’s ability to bundle products more effectively, which often includes a bundling discount, will further increase pricing pressure.”

TPG last week announced it had won a $1.26 billion bid for spectrum in the 700MHz band at an auction by the Australian Communications and Media Authority with which it plans to build a mobile network covering 80% of Australia’s population.

Billionaire David Teoh’s company expects to break even on EBITDA (earnings before interest, tax, depreciation and amortisation) with only 500,000 subscribers, which equals a market share of around 2%.

TPG already has around this number of customers through its agreement to re-sell Vodafone Hutchison 4G mobile service under the TPG brand.

Moody’s says TPG also has a significant cross-selling opportunity with 1.9 million fixed-line broadband subscribers. It will be able to bundle products across fixed broadband and mobile.

Australia’s aggregate mobile market is worth about $8 billion. Telstra’s market share is 54%, Optus has 29% and Vodafone 17%.

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