TPG to build AU$1.6b Australian mobile network with 700MHz spectrum buy

TPG has announced that it will be building a mobile network in Australia using its purchase of the majority of the mobile broadband spectrum in the 700MHz band for AU$1.26 billion.

TPG will pay for its 2x 10MHz of spectrum in the 700MHz band through three instalments: AU$605 million (less a deposit of $10 million) in January 2018; AU$352 million in January 2019; and AU$352 million (inclusive of interest) in January 2020. The buy will allow it to become the fourth mobile operator in Australia.

"TPG will build a mobile network in Australia using current advanced technology for AU$1.9 billion, comprising AU$600 million for network rollout capital expenditure over a three-year period to achieve 80 percent population coverage; and AU$1,260 million for the 700MHz spectrum, which will be payable in three annual instalments," TPH said in a statement to the Australian Security Exchange (ASX).

"The network would provide broad coverage across densely populated areas of the country with approximately 2,000 to 2,500 sites. TPG estimates that its mobile network would be EBITDA break-even with 500,000 subscribers."

According to TPG, it will fund the new mobile network using its operating cashflows and through new and existing debt facilities. As such, TPG has also announced the launch of an accelerated non-renounceable pro-rata entitlement offer to raise AU$400 million at a fixed price of AU$5.25 per new share.

"This acquisition of 700MHz spectrum in Australia is a tremendous development for the long-term future of TPG. We are uniquely positioned to leverage our success in the Australian fixed-line broadband market to drive the next phase of growth for TPG's shareholders and bring new competition to the Australian mobile market," said TPG CEO David Teoh.

"We believe that our mobile strategy will be complementary to our ongoing fixed line business, with the ability to bundle mobile and fixed services expected to have a beneficial effect on our already low fixed services customer churn."

TPG will combine the 700MHz spectrum with its existing holdings in the 2.5GHz and 1800MHz bands.

Vodafone Australia won the other 2x 5MHz in the 700MHz spectrum band on offer, paying the government AU$1.25 per MHz per head of population for a total of AU$285.9 million.

Vodafone said this pricing was in line with what it had initially proposed to pay back in 2015, when it enquired into whether it could buy the spectrum outright for either AU$571,814,450 upfront or in three instalments totalling AU$594.3 million.

The Australian Communications and Media Authority (ACMA) last year decided to auction off the remaining 700MHz spectrum -- which is used for additional 4G mobile broadband capacity, particularly over long distances -- after consulting on Vodafone's proposal and determining that there was strong market interest from other providers.

It revealed its proposed entry fee, lot configuration, and auction methodology in October.

The ACMA then opened applications for its 700MHz spectrum auction in January, as well as confirming that it would be auctioned off in two lots: One lot of 2x 10MHz in the 738-748MHz frequency range paired with 793-803MHz; and one lot of 2x 5MHz in the 733-738MHz paired with 788-793MHz.

Vodafone had chosen not to take part in the original 700MHz spectrum auction in 2013, during which Telstra bought 2x 20MHz of the 700MHz spectrum band and 2x 40MHz of the 2.5GHz band for a total of AU$1.3 billion; Optus bought 2x 10MHz of spectrum in the 700MHz band and 2x 20MHz in the 2.5GHz band for a total of AU$649 million; and TPG bought 2x 10MHz in the 2.5GHz band for a total of AU$13.5 million.

Spectrum licences in the 700MHz band will commence on April 1, 2018, and expire on December 31, 2029.

TPG last week also announced spending a further SG$23.8 million on acquiring more spectrum in the Singaporean mobile broadband market, winning 2x 5MHz in the 2.5GHz band during the general spectrum auction there.

"We are very satisfied with the allocation obtained in the new entrant spectrum auction, and are now very pleased to have successfully taken the opportunity to add to our portfolio of spectrum assets in Singapore," Teoh said last week.

"The additional 10MHz of spectrum will enable us to further enhance the value of the services we plan to offer to Singapore consumers."

TPG said the new spectrum allocated would complement the spectrum it acquired during the new entrant auction at the end of last year, when it was successful in procuring 2x 5MHz in the 900MHz spectrum band and 8x 5MHz in the 2.3GHz spectrum band for a total of SG$105 million -- far above the SG$35 million reserve price.

The spectrum buy will allow TPG to become the fourth provider in the Singaporean mobile market alongside Singtel, Starhub, and M1.

TPG last month predicted a capital expenditure spend of between SG$200 million and SG$300 million for the rollout of its Singaporean mobile network.

TPG has previously denied reports that it is similarly considering entering the New Zealand mobile market via an acquisition of New Zealand's third-largest mobile telco, 2degrees, however.