TPG ditches network rollout as Huawei ban claims first casualty

TPG has scrapped plans to build a $600m mobile network since it cannot be upgraded using 5G equipment supplied by Huawei.

A bus branded with TPG ads passes a pedestrian. The telco has abandoned the rollout of what would have been Australia’s fourth mobile network due to the government’s ban on Huawei, which would have supplied equipment. Picture: AP

Billionaire TPG founder David Teoh has declared it “doesn’t make commercial sense” to push ahead with building a $600 million mobile network if it can’t be upgraded to 5G using equipment from his existing China-based supplier, Huawei.

His comments come after TPG put the rollout of the challenger mobile network on hold, marking the first major commercial casualty of the Coalition government’s decision last year to ban Huawei from working on the nation’s 5G mobile networks.

The move has handed under-pressure rival Telstra a much- needed advantage in the unfolding 5G arms race given it stands to ­remove what could have been a damaging competitor from the telecommunications sector.

Mr Teoh, TPG’s executive chairman, told The Australian that Huawei’s ban had forced the telco to rethink how much it was willing to spend on its mobile network, which could not be easily up­graded for 5G.

“(The ban) is very disappointing. Huawei has good technology, the cost is very good but the law is the law, we can’t do much about it,” he said.

“We spent some time looking at alternative vendors for 5G equipment and whether their equipment could connect with Huawei’s 4G kit but it’s not allowed and if we looked at other vendors we will have to go back to the drawing board.”

Mr Teoh said it did not make commercial sense for TPG to continue to invest shareholder funds in a network that could not be upgraded to 5G.

TPG shares shot up more than 3 per cent to end yesterday’s session at $7.17. Meanwhile, Telstra shares hit a four-month high on the back of TPG’s announcement, rising 7.7 per cent to $3.19, with the market seeing it as a big win for the incumbent telco.

The move also stands to boost the chances of TPG’s mooted merger with Vodafone Hutchison Australia winning the Australian Competition & Consumer Commission’s approval.

The ACCC late last year raised concerns about the tie-up, with the regulator’s chairman, Rod Sims, last month stating his preference to see TPG enter the market as a fourth mobile operator. With the ACCC’s verdict due in April, TPG’s decision to ditch its mobile rollout removes the prospect of a fourth independent operator in the market, forcing the regulator to re-evaluate its position.

Mr Sims told The Australian the impact of TPG’s decision on competition would be thoroughly considered before the regulator made its final decision on the merger.

“It’s something we will take into account. Merger assessment is always forward looking. We will get more information from TPG, but any decision made now will need to look at how TPG and Voda­fone will evolve, with or without the merger, and where the overall market is headed.”

Jason Teh, chief executive of fund manager Vertium, said Telstra was likely to benefit irrespective of whether the ACCC ­approved the proposed TPG-­Vodafone merger.

“TPG has traditionally been seen as a disrupter in the market but with no 5G mobile network there’s no disruption. Without the merger it doesn’t provide any competition,” Mr Teh said.

“It’s still unclear whether a merged TPG-Vodafone will be aggressive with its prices or just look to milk its combined position in the market.”

He warned that TPG’s position in the market could become more precarious if the ACCC decided to reject the merger.

“The Vodafone merger is a lifeline for TPG,” he said.

“Without it it’s likely to end up as a second-tier, geared-up telco. While Telstra still has a strong balance sheet, TPG’s is only going to get worst as the National Broadband Network bites into its margins. Even with the Huawei equipment it was still going to cost TPG a lot of money.”

TPG announced plans to build a $600 million mobile network in 2017, with Huawei as its principal equipment vendor. The telecom industry has had its doubts about whether the telco could actually build a fully fledged mobile network for $600m, especially after Huawei’s ban. A merger with ­Vodafone would remove the need for TPG to invest in a separate mobile network.

TPG has so far spent about $100m on the network and, prior to August last year, purchased equipment for 1500 mobile sites. It added that it had fully or partially completed the implementation of just over 900 small cell sites, with an additional $30m already committed for the network.

Mr Teoh said he was not ready to write off the $130m investment just yet and no decision had been made on the 4G and 5G spectrum the telco has picked up so far at a cost of almost $2 billion.

“We are not writing off the asset, we are looking at what other solutions we have but are in a very difficult position right now and we are reviewing all of our options,” Mr Teoh told The Australian.

Vodafone Australia said it remained confident the merger would still get the green light from the ACCC, saying the tie-up had the potential to create a strong third player in the mobile market, including in 5G.

It said its 5G road map was unaffected by the Huawei ban. “While national security is of paramount importance, we have always been clear that we believe the restrictions on 5G vendors by government would have practical implications,” Vodafone chief strategy officer Dan Lloyd said.

“Vodafone has already taken into consideration the impact of the government’s decision for its 5G plans.”

TPG’s decision also gave Huawei an opportunity to comment on the implications of the ban on the Australian telecom markets, with Huawei Australia’s corporate affairs director, Jeremy Mitchell, reiterating that the ban would see Australian consumers miss out on cheaper and more ­affordable mobile services.

“As predicted, the Australian government’s 5G ban on Huawei will lead to reduced competition and higher prices for Australian consumers and businesses,” Mr Mitchell said. “It’s not just higher prices, Australians will miss out on the competition that drives technology innovation.”

However, with tensions between Huawei and the US ­government escalating over allegations the Chinese company had stolen US technology and violated trade sanctions, it is unlikely to play any meaningful role in the Australian 5G networks.

A federal government spokeswoman told The Australian that the security risks posed by Huawei to 5G networks was too great to ignore.

“While the government wants to realise the full benefits of 5G, we need to ensure that Australian’s information and communications is protected at all times,” she said.

“The Australian government recognises the opportunities 5G networks present for economy- wide transformation and is committed to protecting this vital technology.”