TPG to cop near AU$230m accounting hit due to mobile network abandonment

Telco to write-down its mobile network and reduce value of spectrum licences pending the merger with Vodafone.
Written by Chris Duckett, Contributor

TPG has disclosed to the Australian Securities Exchange the accounting implications of its decision to abandon the building out of its Australian mobile network, following the ban of Huawei's 5G equipment in the country.

The largest individual cost to TPG will be the reduction in value of its unused spectrum licences by AU$92 million, with the telco saying this was due to licences having a finite duration.

"Having ceased its mobile network rollout, the group now has no business plan or strategy for using its spectrum licences on a standalone basis and, accordingly, the carrying value of these licences is required to be reassessed," the company said.

Next in line is an approximate AU$76 million hit due to the writing down of capital expenditure associated with the construction of its mobile network, and an around AU$60 million write down due to interest capitialisation on debt needed for spectrum purchases.

For the spectrum and mobile network, TPG said its proposed merger with Vodafone will see both assets used, but since the merger still needs regulatory and shareholder approval, and is not certain to happen, the value to the new entity cannot be used to determine the value of current assets.

Although it needs to take the one-off, non-cash impairments that will hit its bottom line, TPG said it is still on track to hit its AU$800 million to AU$820 million earnings before interest, tax, depreciation, and amortisation guidance.

"TPG advises that, notwithstanding these impairments, the group continues to operate comfortably within its banking covenants," it said.

TPG is due to report its first-half results on March 19.

Last month, the Australian Competition and Consumer Commission (ACCC) pushed out the date for a decision on the TPG-Vodafone merger from March 28, to potentially April 11.

TPG previously said it had purchased equipment for 1,500 sites, as well as 900 fully or partially completed small cell sites. The company has already racked up AU$100 million in costs, with a further AU$30 million to come.

"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," executive chairman David Teoh said at the time.

"Over the past two years a huge amount of time and resource [sic] has been invested in creating and delivering on a strategy that would have positioned TPG very favourably to exploit the opportunities that the advent of 5G will present."

Handed down in August, Canberra officially locked out Huawei and ZTE, saying that the vendors were likely to be subject to extrajudicial directions from Beijing, and that the government could not find a set of security controls that would mitigate high-risk equipment in a 5G scenario.

At the same time TPG had announced its mobile network abandonment, the United States unsealed charges against Huawei and its CFO Meng Wanzhou.

The charges relate to conspiracy, fraud, obstruction of justice, and intellectual property theft.

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