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odafone Australia boss Inaki Berroeta has played down talk that TPG Telecom is going to eat its lunch in the mobiles market through a combination of cheaper prices and unlimited data plans.
Goldman Sachs and Ord Minnett analysts have warned that TPG poses a far bigger threat to Vodafone than it does to Telstra, but Mr Berroeta isn’t convinced TPG’s $2 billion network has what it takes to pose a threat, saying it would have to spend a lot of money to be truly competitive.
“Given the spectrum they have and a plan to build 2500 sites, I think the type of product they will offer will be very niche,” he said.
“If they want to compete in the market and make an impact they will probably need quite a few more sites and will need to buy a lot more spectrum.”
TPG made its long awaited entry into the Australian market last week after paying a record sum of $1.3bn for the 700MHz spectrum and will also spend $600m to build its network.
Mr Berroeta said he was surprised how much money the telco had spent at the auction.
“In markets like Australia, the story of the fourth entrant has never been very good and to become a proper operator in this market you have to spend a lot more of the money than what TPG has allocated.”
According to Moody’s, TPG’s pricing could be a game-changer for Vodafone, Telstra and Optus, with aggressive price plans likely to lower the average revenue per user for all three operators.
With a ruling on domestic roaming from the Australian Competition & Consumer Commission due at the end of this month, TPG’s entry comes at a tricky time for Vodafone. The telco just managed to start posting free cash flow in 2016 and a positive ruling on roaming from the ACCC will give it a cheaper path to boosting its presence in regional Australia and give better service continuity for its metro customers.
TPG is also hoping to gain regulated access to Telstra’s regional network, with the telco’s boss David Teoh citing it as the only viable way of getting more services into underserved areas.
Telstra and Optus are against regulated roaming and both maintain that TPG’s mobile entry undermines the need for any further regulatory intervention.
With the aggregate mobile market earnings at some $8bn, TPG has the potential to become a low-cost disrupter as it follows the same game plan that has given it success in the fixed broadband market. According to Moody’s senior credit officer Ian Chitterer, TPG has a number of other assets in place to aid its mobile strategy.
“TPG can leverage its existing call centres and back-office systems, and already owns assets such as backhaul and international capacity,” Mr Chitterer said.
Telstra’s mobiles market share is about 54 per cent, Optus has 29 per cent of the market and Vodafone 17 per cent.
Unlike Telstra and Optus, Vodafone doesn’t have a lot of exclusive content to jazz up its bundles. However, Mr Berroeta said: “Telcos are buying exclusive rights for someone else’s content and that’s a good way to lose money, no telco is making money from their content business.
HTA Price at posting:
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