TPG to Build Mobile Network

TPG to Build Mobile Network

Although TPG Telecom (TPM) has been the topic of several past blogs, further developments have occurred that are worth writing about. TPM is currently primarily an internet service provider, however, they do also have mobile phone plans. These plans rely on another company’s network (Vodafone) as TPM does not have its own mobile service infrastructure. This is about to change with TPM recently successfully bidding for a chunk of mobile phone spectrum. This is a precursor to building its own mobile network.

Click here to read my previous article on TPG Telecom.

Due to the limited space available in the part of the radio spectrum suitable for mobile phone signals, the government conducts an auction system that awards portions of the spectrum to the highest bidder. In the recent auction, the government (specifically the Australian Communications and Media Authority) set a reserve price of $857m but TPM only won the auction by paying well over this amount at $1.26bn. Many market commentators mentioned that this was a very high price to pay for the spectrum but TPM CEO, David Teoh, simply claims it is the cost of future profits.

Regardless of whether or not TPM overpaid, the effect of the announcement on TPM’s competitors was clear from their share price reactions. Telstra’s (TLS) share price dropped by 7.2% immediately following the announcement as shareholders worried that TPM’s entry would crimp TLS margins in the mobile sector. TPM is known for pricing its services quite aggressively and it is expected that it will offer cheaper mobile plans than TLS. Furthermore, with its large base of internet subscribers, TPM will be able to offer bundled plans that further improve the value for money for the consumer.

Interestingly, the market reaction to TPM’s announcement that it had purchased the mobile spectrum was decidedly negative. The share price dropped 14% after emerging from the trading halt although it has recovered some of that loss. This decline brings TPM’s total decline to over 50% from its highs of 2016. In fact, the stock is now trading back at levels not seen since 2014. This raises the question then of whether the stock is now cheap considering the large price decline. Based on the most recent half yearly report, the annualised trailing P/E ratio is currently at around 11 times. Considering that TPM has a lot of growth opportunity, this suggests the fall in share price is overdone. Having said that, there is a fairly high degree of risk in TPM’s mobile expansion plans and it will take many years to determine whether the strategy has been a success.

Ready to chat about your portfolio? Get in touch today via email: william.oloughlin@rivkin.com.au or by phoning +612 8302 3633. 

comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice, securities and derivatives dealing services and accounting administration services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.