A Vodafone Australia executive has hit back at speculation that his company would suffer the most as a result of TPG’s entry as the country’s fourth mobile network.
TPG last week won the 700MHz band for $1.26 billion in a government auction and announced it would spend another $600 million to deploy the network to 80% of the population. The new network will compete with incumbents Telstra, Optus and Vodafone.
While Telstra’s share price plunged as a result, chief executive of independent telco Inabox, Damian Kay, told Business Insider earlier this week that TPG’s entry would have “a serious impact” on Vodafone as it currently had the smallest market share.
“I wouldn’t be surprised if Vodafone ends up selling to TPG,” he told Business Insider. “In fact, maybe that’s actually the plan.”
In response, Vodafone chief strategy officer Dan Lloyd said that while “it can only be a good thing for consumers” if TPG can succeed as the fourth player, he can’t work out how it can build an entire network for just $600 million.
“We are investing at a higher capital intensity than our two major competitors, and suffice to say, our investment just to maintain and enhance a world class network is well above $600 million capital expenditure over three years,” he said.
TPG already has more than 21,000km of fibre optic cables installed for its current broadband offerings, so the $600 million budget is mainly going towards mobile tower locations. Fairfax Media has reported it’s aiming for 2,500 sites at about $240,000 each.
Lloyd said that building a mobile network in a vast country with low population density like Australia is “courageous and challenging” even in the metropolitan areas.
“[Mobile tower] sites are not only expensive, but can be increasingly difficult to secure,” said Lloyd.
TPG’s current broadband and mobile plans – purchased wholesale from Vodafone and re-sold – are known for aiming aggressively at the budget end of the market. The company’s chief executive David Teoh told Fairfax Media last week that the products on its own mobile network would be “extremely competitive” in price and customers in the first city of deployment, Canberra, would get its services free for the first six months while it stamps out potential bugs.
While Lloyd admitted TPG’s market strategy is a matter for TPG, he said the “first step” in signing up new customers is to “build a quality network” – and had doubts the new player had the cash to make that happen.
“VHA has spent billions of dollars over recent years to build its network, which has been recognised as the top performing network in major cities with populations above 100,000 in the recent P3 benchmark tests.”
Both Vodafone and TPG are heavily invested in the Australian Competition and Consumer Commission approving domestic roaming, in a decision expected before May. Domestic roaming would force the two larger networks – Telstra and Optus – to open up access to their infrastructure to the two smaller players, so that coverage gaps can be filled.
Telstra has argued the record prices paid for spectrum last week demonstrates that Australia already has “a strong and competitive mobile market” and there is no need to induce domestic roaming.
Vodafone Australia is already a joint venture entity that arose out of a 2009 merger with Australia’s former fourth mobile network, Hutchison 3G Australia.