TPG and Optus combine forces in $1.6b assault on Telstra’s regional market share

Matt Mckenzie
The Nightly
3 Min Read
The agreement will expand TPG’s network from 755 sites to almost 2,450.
The agreement will expand TPG’s network from 755 sites to almost 2,450. Credit: onkelglocke/Pixabay (user onkelglocke)

TPG has signed a $1.6 billion deal to dramatically scale up mobile coverage in regional Australia using the Optus network, a move which could set up a battle with Telstra.

The agreement will expand TPG’s network from 755 sites to almost 2,450, spread over 1 million square kilometres.

TPG has been under investor scrutiny with looming capital costs set to reduce the company’s ability to pay dividends.

Sign up to The Nightly's newsletters.

Get the first look at the digital newspaper, curated daily stories and breaking headlines delivered to your inbox.

Email Us
By continuing you agree to our Terms and Privacy Policy.

The Optus deal will help TPG avoid the expense of building its own expanded network to connect regional customers to brands Vodafone, TPG, iiNet, Lebara and felix mobile.

But the 11-year pact will need a green light from the Australian Competition and Consumer Commission.

The agreement comes just less than 18 months after the ACCC knocked back a deal between TPG and Telstra on the grounds the move reduced competition.

Bell Direct market analyst Grady Wulff said the “deal increases the competitive landscape for the regional network market”.

“Telstra has dominated for many years now with little competition in market share,” she said.

Ms Wulff said investors had welcomed the deal because it would reduce TPG’s capital outlay to build its own network.

“Capex is an area of concern not just for mobile service providers, but for all companies in the high-interest rate environment,” she said.

TPG will pay $1.6b to use the network but would also earn cash from selling spectrum to Optus.

That could be worth as much as $420m, according to a forecast TPG provided shareholders.

TPG Telecom chief executive Iñaki Berroeta said the partnership would mean the business could grow scale “in the most efficient way possible”.

“Network infrastructure sharing of this kind avoids unnecessary capital investment and high operating costs, meaning there is more value for shareholders and less cost to pass on to customers,” he said.

“This network sharing arrangement will reset the competitive landscape for mobile services in regional areas and provide Australians with more choice than ever before.”

He said the deal was a “sustainable approach” in a large country.

Optus interim chief executive Michael Venter labelled the deal “a win” for regional Australia.

“Optus and TPG Telecom will be positioned to provide consumers with more choice and better services as we accelerate our investment in the regions,” he said.

“The agreement will reduce combined 5G network rollout costs in regional Australia, which will enable the rollout of 5G infrastructure to be completed two years earlier than previously planned.”

Federal Communications Minister Michelle Rowland cautiously backed in the deal.

“I welcome any commercial agreements that may lead to greater coverage and more choice for customers in rural and regional Australia,” she said.

“I look forward to the independent Australian Competition and Consumer Commission’s assessment of whether this new Optus-TPG Telecom agreement achieves just that”.

The ACCC knocked back a proposed agreement between Telstra and TPG in 2022. That was affirmed by the The Australian Competition Tribunal the following year.

The competition watchdog said at the time that mobile network operators competed on price and other factors which were influenced by the underlying network, including speed, coverage and quality.

“Entering into the arrangements proposed by Telstra and TPG will represent a significant change to the structure of the market that would have long-term consequences,” the ACCC said in late 2022.

TPG shares had lifted 5.1 per cent to $4.35 each at the time of writing.

The announcement came on the same day Optus parent Singtel revealed a $540m impairment.

Ms Wulff said a weaker economic environment had led to turbulence for telcos in 2024.

“Switching across most consumer services has been elevated since interest rates started rising as Aussies look for the best bang-for-their-buck in the high cost of living environment, which has hurt not only Optus, but most mobile service providers’ margins in FY24.”

Latest Edition

The front page of The Nightly for 21-05-2024

Latest Edition

Edition Edition 21 May 202421 May 2024

The PM, the terrorist and the A-list barrister demanding war crimes charges.