Telstra-TPG: A little co-operation goes a long way in the telecoms market

Telstra CEO Andy Penn: ‘Getting access to the spectrum, that’s a massive part of this deal for us to provide that enhanced service for customers while maintaining our strategic differentiation.’ Picture: Aaron Francis

Monday’s 10-year network sharing agreement between Australia’s No. 1 and No. 3 telcos is strange: strange because Telstra and TPG, traditionally fierce competitors, both feel they come out winners.

It turns out that when rivals co-operate they can both do well out of it. Sharing allows them to monetise their infrastructure. How refreshing compared to some other decisions taken by business leaders, notably the shameful overinvestment in LNG export plants.

The deal fits nicely into Telstra chief executive Andy Penn’s broader strategy of monetising the telco’s infrastructure investments. In this case, he brings in between $1.6bn and $1.8bn over a decade in a deal that also allows Telstra to access TPG’s valuable 4G and 5G spectrum as more Australians shift to regions.

“Getting access to the spectrum, that’s a massive part of this deal for us to provide that enhanced service for customers while maintaining our strategic differentiation,” says Penn.

Telstra will offer wholesale services to TPG as it does to other mobile virtual network operators in the area, boosting wholesale revenues.

TPG chief executive Inaki Berroeta first spoke to me about sharing networks back in 2014, shortly after he took on the role.

“It takes industry time to realise we need to look for better ways of getting returns for our investments,” he says, adding he is delighted at a deal that will deliver much more for Vodafone, iiNet and TPG customers.

The network sharing leapfrogs TPG to second on the ladder for coverage, ahead of Optus. Telstra will have 99.3 per cent coverage, TPG 98.8 and Optus 97.3 per cent.

“We go from having roughly 750 mobile tower sites in the region to now having 3700, five times our infrastructure size in regional Australia, an incredible advance for us.”

Interestingly, while Berroeta sees more competition in areas where there was not much before, Penn does not see TPG’s creeping coverage as a threat. He says the deal is not really creating more competition in the doughnut around cities. “There is a bit otherwise TPG wouldn’t be doing it, but we continue to maintain our start differentiation with that coverage.”

Telstra’s leading national coverage has been the big selling point for customers and Penn says that will continue because Telstra remains the only coverage provider for the bush.

The other differentiator for both telcos is that the core networks for each, where all the different products and services like 5G are developed, are not shared.

The deal improves the economics for both to invest more in their networks for the benefit of customers. Any wonder that (respectfully) neither Penn nor Berroeta sees the Australian Competition and Consumer Commission as an issue.

And Penn can talk about value creation for shareholders just as Telstra shifts from his strategy of necessity (T22) to a strategy for growth (T25): “You put this in with energy, Digicel, the infrastructure investments, the Quantium and Intellihub, and now this: it’s about having long-term value growth.”