TPG Telecom has called it quits on rolling out its mobile network in Australia, following the Australian government’s decision to ban companies from using Huawei equipment to build 5G networks.
TPG has spent to-date approximately $100 million in using Huawei equipment to build out what was meant to be Australia’s fourth largest mobile network. It was expected to compete head to head with the likes of Telstra and Optus.
Prior to August 2018, TPG purchased equipment for 1,500 sites and has fully or partially completed the implementation of just over 900 small cell sites.
However, due to the government’s decision to ban the use of Huawei equipment in late August 2018, TPG’s path to upgrading its network to 5G is now blocked.
Melbourne academic and telecommunications specialist Mark Gregory says the government’s decision undermines TPG’s fundamental business case to operate as a mobile network provider now that it’s unable to use Huawei’s low-cost equipment.
According to TPG, it has been exploring if there are any solutions available to address the problem created by the Huawei ban but has reached the conclusion that it does not make commercial sense to invest further shareholder funds in a network that cannot be upgraded to 5G.
“It is extremely disappointing that the clear strategy the company had to become a mobile network operator at the forefront of 5G has been undone by factors outside of TPG’s control,” TPG executive chairman David Teoh said in a statement filed to the Australian Stock Exchange on Tuesday.
The company said while it won’t speak about the company’s future strategy on its current spectrum holdings, it is carefully considering all the options available. This is expected to include the proposed merger with Vodafone Australia, valued at $15 billion.
Vodafone Australia chief strategy officer Dan Lloyd has said in a statement that the company remains committed to the merger with TPG.
“As we’ve always said, increased investment requires increased scale. The merger has the potential to create a strong third player in the Australian market, including in 5G,” he said.
“While national security is of paramount importance, we have always been clear that we believe the restrictions on 5G vendors by government would have practical implications. VHA has already taken into consideration the impact of the government’s decision for its 5G plans.”
At the end of last year, the Australian Competition and Consumer Commission (ACCC) expressed concerns that if the proposed merge between TPG and Vodafone occurred, it would result in a “substantial lessening of competition”.
“If TPG remains separate from Vodafone, it appears likely to need to continue to adopt an aggressive pricing strategy, offering cheap mobile plans with large data allowances,” ACCC chair Rod Sims said at the time.
“Our preliminary view is the merged TPG-Vodafone would not have the incentive to operate in the same way, and competition in the market would be reduced as a result. A mobile market with three major players rather than four is likely to lead to higher prices and less innovative plans for mobile customers,” he said.
Dr Gregory anticipates given TPG was “forced into this position” to abandon its mobile network plans, the ACCC will approve the proposed merger.
“Both Vodafone and TPG were both heavily reliant on the price advantage afforded by utilising equipment from Huawei. They will now struggle because they’ve lost the advantage they had from being able to utilise the lower cost infrastructure provided by Huawei,” he told InnovationAus.com.
“It means if they’re going to compete with Optus and Telstra, this can only happen if they have the size and scale to do that and that can only be achieved is by merging. In effect the government’s decision has brought about one possible outcome, and that is for Vodafone and TPG to merge. The ACCC needs to make note of this.”
With Huawei now out of the picture, Australia’s telco companies now only have the option to choose from two equipment providers – Nokia and Ericsson. Telstra had confirmed in October that it was partnering with Ericsson for its 5G mobile rollout, while there are speculations that Nokia is the frontrunner provider for Optus.