TPG's founder, executive chairman and CEO David Teoh, was put under the microscope by Michael Hodge QC, counsel for the Australian Competition and Consumer Commission's (ACCC), during the third day of the Federal Court case on Vodafone and TPG's blocked merger.
Through detailed questioning, Hodge has painted a picture of the TPG board being largely directed by Teoh's desire to move into the mobile market and establish a fourth mobile phone network.
In his affidavit, Teoh said he was confident of the company's plan to build a mobile network. That plan, or business model, as it was called during his testimony, was a spreadsheet model that allegedly considered a number of factors such as the company's ability to acquire mobile customers, the cost of spectrum, the cost of building infrastructure, and financial considerations such as weighted average cost of capital and their impact on the net president value of the company's investment.
Hodge engaged into a line of questioning that worked through Teoh and TPG's decision making through board meetings.
During questioning, it was revealed that in a series of meetings held through late 2016 and early 2017, TPG's board approved increasing amounts that could be used to bid for valuable 700MHz mobile spectrum that was being auctioned by ACMA. From an initial approval of AU$800M around April 2016, the board incrementally increased its approval to AU$900M, then AU$1 billion, before eventually authorising AU$1.26 billion by April 2017.
The decision to make that investment, according to Teoh's testimony, was because "the future is mobile".
He added that he had the trust of his board when questioned whether such a massive decision could be made without much more than his say-so and a spreadsheet that, as Hodge later exposed through questioning, was allegedly manipulated to shift the investment from being a negative net present value (NPV) to a positive one by changing a few values on a spreadsheet.
"You didn't care about the NPV because you wanted to get into mobile," said Hodge. Later in the cross examination, Hodge said to Teoh: "You wanted to do this not matter what," which Teoh refuted.
The ability of TPG to make quick decisions was because "we are not that bureaucratic," Teoh said.
"We are quite agile. Things move quite fast in the company."
At the completion of the spectrum auction in December last year, Hodge noted that the model used by the board on 6 April 2017 was quite different to the one used just four days later, when TPG sought funding to cover its successful purchase at the spectrum auction.
In that new model, changes were allegedly made to customer acquisition forecasts -- from 45,000 customers per month to 60,000, as well as changes to finance rates -- which resulted in the NPV moving from minus AU$288 million to AU$790 million, a turnaround of over a billion dollars.
The ACCC's opposition to the merger is based on the commission's belief that an independent TPG could build a new mobile network, offering customers more choice than the existing Telstra, Optus and Vodafone hegemony.
Under cross-examination, Teoh said TPG had many advantages of the incumbent network operators as it has no need to support legacy 2G and 3G networks, owns significant fibre backhaul, and has its own international links.
It was for these reasons that Teoh believed TPG could do better than the initial models that had been presented to his board.
Teoh's testimony and cross examination will continue in the coming days, with the court to look into the impact of the government's decision to block the use of Huawei as a supplier as well as where Vodafone fits into the picture.
The ACCC has argued that blocking the proposed merger of TPG and Vodafone would increase competition in the mobile market, saying TPG would then be compelled to build a new network if the merger is derailed.
The Federal Court will decide whether the ACCC's attempt to block the proposed merger between TPG and Vodafone is bad for the market, or if the merger will actually increase competition by pushing TPG to build the country's fourth mobile network.
David Teoh began his testimony late on the second day of the hearing, following several hours of the court being closed during which Vodafone and TPG revealed confidential information including financial information and commercial plans.
During his examination by Hodge, Teoh's answers regarding TPG's planned 4G and 5G networks were vague, saying that a number of factors, such as the ban on the use of Huawei equipment and the telco's capacity to upgrade from 4G to 5G had influenced the company's decision to abandon plans to build a fourth mobile network.
The government's decision to ban Huawei has hit TPG hard.
The arguments made by TPG and Vodafone, reported by Nine media, put forth that the ACCC's decision to block the merger for competition reasons was made without an understanding of the commercial environment and how the market works.
During opening statements at the Federal Court, where TPG and Vodafone are fighting against the ACCC's ruling, Vodafone's legal counsel Peter Brereton reportedly said: "The notion that TPG would, if the merger's blocked, roll out a mobile network is just not of the real commercial world". And while TPG does have a substantial slab of mobile spectrum, it was now "wasting away" according the TPG's counsel, Ruth Higgins.
The ACCC's case, meanwhile, is more straightforward. The competition watchdog says that if the merger of TPG and Vodafone is blocked, TPG will have no choice but to build a new network.
Typically, the ACCC blocks mergers when it reduces existing competition. But this opposition by the ACCC is about influencing a company's future business plans. In effect, it's saying the block would force TPG into building its network.
The ACCC believes an independent TPG would build its own mobile network, in competition with Telstra, Optus, and Vodafone, giving consumers another option. This position by the ACCC was influenced by TPG's deployment of microcells for its targeted rollout of its own network -- before it was cancelled -- and its decision to buy mobile spectrum.
The case will continue for about three weeks.