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TPG to focus on FttB, mobile, corporate business to manage NBN margin squeeze

Australian telco TPG will look to boost its on-net business and get into mobile in both Australia and Singapore to make up for margin pressure felt as its ADSL business comes to an end.
Written by Chris Duckett, Contributor on

As its ADSL business is replaced by the NBN and the cost of offering services to consumers moves from AU$15 to AU$40, thanks to the NBN's connectivity virtual circuit charge, Australian telco TPG will look to increase its number of on-net users to make up the margin shortfall.

Speaking at its annual general meeting on Wednesday, TPG chief financial officer Stephen Banfield said the company had a number of options as it makes the transition to the NBN.

"We as a group are embracing the NBN, the NBN is rolling out and we strive to be the best provider of NBN services; at the same time it is very important that we focus on our on-net business, where our strengths are," he said.

Pointing to its fibre-to-the-basment alternative to the NBN, Banfield said the business was more profitable than the ADSL business.

The TPG CFO also said the company's corporate division, which contributed AU$269 million in EBITDA for the year, was more profitable and growing faster than the $256 million in EBITDA posted by the TPG consumer division.

"All of these on-net businesses, it's very important that we focus on those at the same time as embracing the NBN, in order to mitigate, to some extent, the margin headwinds that will come through from transitioning from a consumer DSL service to an NBN service," he said.

Once the rollout of the NBN is complete, the company will be able to save money by removing its DSLAMs from Telstra exchanges, the CFO said.

TPG executive chairman David Teoh said it was unavoidable that the company had to get into the mobile game.

"We stated quite clearly that we would like to be the fourth mobile operator ... it is a difficult project, and we have to be careful in our implementation," he said.

"What you have in this company, a lot of things are in place: The extensive fibre infrastructure, the backhaul that we own; there is one key cost to run a mobile network, the customer service; the core network; the billing systems; they are all in place today.

"What we lack are the towers -- acquiring tower space is very difficult in this country."

By contrast, Teoh praised the Singapore government for regulating tower access. TPG will enter a spectrum auction with MyRepublic to become the island nation's fourth mobile operator in the first quarter of next year.

"Is there risk to set it up? In my view that is quite minimal on the Singapore side, but then the future, the long-term future is very exciting," Teoh said.

"So mobile is very important to us."

Earlier on Wednesday, shareholders in wireless broadband provider BigAir approved the proposed purchase of the company by fibre infrastructure company Superloop.

Like TPG's FttB business, the combination of Superloop and BigAir will allow for the selling of broadband services that avoids the NBN CVC cost. Superloop CEO Bevan Slattery previously labelled NBN's CVC charge as galactically stupid pricing.

"The cost of international capacity, I think, is going to remain cheaper than the CVC charges. So international capacity for the next five years or 10 years is going to be cheaper than the CVC charges ... there is no way it should be cheaper to get connected from next door to the POI next door than it should be to go trans-continental. That's just crazy," Slattery said.

In October, NBN forecast the CVC wholesale price would drop to AU$10 thanks to increased usage of data across the network.

"As data usage continues to increase over the network, we expect CVC pricing to drop further; in fact, with our forecasted usage, we see the CVC price approaching AU$10 a unit," NBN CEO Bill Morrow said at the time.

For its full year results announced in September, TPG reported underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) of AU$775.3 million on revenue of AU$2.388 billion.

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