By Lucy Battersby
TPG will offer six months of free mobile services when it launches a new mobile network next year to entice customers to test out its infrastructure.
The cut-price telco surprised the industry on Wednesday when it paid a record-high price for mobile spectrum and announced plans to build a fourth 4G network covering 80 per cent of Australia's population.
Meanwhile, Telstra's share price continues to fall as investors worry about its ability to maintain higher mobile prices Analysts expect it to lose up to one million customers and are lowering their target prices.
Telstra shares closed at $4.16 on Thursday, down from $4.56 before TPG announced its plans. TPG shares are currently in a trading halt that will be lifted on Tuesday morning. It last traded at $6.66.
Telstra is cutting staff to save costs.Credit: Peter Braig
TPG's chief executive David Teoh said he will offer six months of free mobile services to people in Canberra next year – the first rollout city – to get feedback on the network quality.
In the long run that TPG's mobile prices would continue to be "extremely competitive".
"In our plan we have to be successful [and] very attractive in the marketplace. We are very excited," Mr Teoh told Fairfax Media.
On Wednesday TPG emerged as the highest bidder in a spectrum auction that netted $1.5 billion for the federal government. It paid $1.26 billion for two 10 megahertz [MHz] lots of spectrum at 700 MHZ and Vodafone paid $285 million for two 5 MHz lots.
TPG chief executive David Teoh is building Australia's fourth mobile network. Credit: Daniel Munoz
The Australian Competition and Consumer Commission may force telcos to share their networks, if it decides to "declare" domestic mobile roaming. This would give everyone access to Telstra and Optus' entire networks in regional and remote areas. A decision is expected before May.
"Roaming is important to us – extremely," Mr Teoh said. "That will help the regional people to get better service and also have options."
Telstra only shut down its twenty year old 2G GSM network last year.Credit: Rob Gunstone
A spokesman for Telstra said the high prices paid for spectrum "show Australia has a strong and competitive mobile market under the current regulatory settings and reinforce why there is absolutely no case for regulated roaming".
Shaw and Partners analyst David Spotswood believes Telstra will lose about one million mobile subscribers between 2019 and 2022.
"TPG building a mobile network cannot be overlooked," he wrote in a note to clients.
"We assume Telstra loses $5 off its average revenue per user in 2019 and 2020 as it enters a price war ... we lower our price target from $4.22 to $3.78."
Ord Minnett painted a more optimistic view of Telstra's future for its clients.
"The threat of a fourth mobile operator in Australia has come one step closer to reality, but the actual impact is still two to three years away and yet to be determined," Ord Minnett's note states.
"It is hard to see how competitive or disruptive TPG could be to the industry, and more importantly to Telstra, given TPG is spending $600 million for only a bare-bones network."
Argo Investments holds about 43 millions Telstra shares and its managing director, Jason Beddow, said TPG has been talking for a while about getting into mobile networks.
"TPG has been a pretty formidable competitor sow we would have to think that they would have a decent crack [at mobiles]," he said.
"Clearly it will put pressure on Telstra. Mobile has been one of Telstra's key profit drivers and it probably will continue to be so, but it is going to be tougher."
Mr Teoh says his company can build a decent network for just $600 million.
"We have a great team in the company and we have the expertise and experience of rolling out basic infrastructure. It shouldn't be any problem at all. We are very confident we will get it done," Mr Teoh said.
TPG already has over 21,000 kilometres of fibre optic cables installed around Australia and will look for mobile sites on infrastructure that is already connected to its fibre.