Money talks as Telstra and TPG hang up on hostilities

The stunning end to hostilities between TPG Telecom and Telstra on sharing mobile telecommunication infrastructure reflects the shifting priorities of two major operators in the local market.

The idea of Telstra willingly working with a rival on regional mobile coverage would have been unthinkable even a few years ago. The depth and reach of its network, compared to its rivals, underpinned Telstra’s dominant position in the market and justified the premium prices it charged.

The surprise tie-up between rivals Telstra and TPG should spark a swift response from Optus. Credit: Pat Scala, Rob Homer, Supplied

However, the difference in coverage footprint has narrowed significantly in recent years. In fact, the proposed deal - which will see TPG gain access to 3700 Telstra towers across regional and urban fringe areas - will see TPG comprehensively close the gap on coverage in areas where it matters.

Provided the agreement gets the tick from the Australian Competition and Consumer Commission (ACCC), the network footprint of all three operators - Telstra, TPG, Optus - will be expansive enough for coverage to become a marginal issue for the vast majority of consumers.

Telstra will continue to have the most extensive network in Australia, but its premium won’t be predicated on that. With the telcos by and large not making a lot of money reselling fixed NBN broadband services to homes, mobile services are shaping up as the key driver of revenues for the operators. The real value for the operators lies in boosting the coverage and quality of their service, and doing it without breaking the bank.

The sharing agreement helps both TPG and Telstra save money, while helping meet their strategic long-term objectives.

TPG’s existing 4G services will get a significant boost in regional Australia. It wins access to 3700 Telstra towers in regional areas, saving itself the headache of having to pour money into building its infrastructure in regional areas, where its chances of making a return on the investment would be slim.

Meanwhile, Telstra not only pockets between $1.6 billion and $1.8 billion of wholesale revenue, the sharing arrangement also gives it access to TPG’s spectrum that will let it expand fixed wireless services in regional areas.

Telstra also gets to further burnish the value of its infrastructure assets as it gets the ball rolling on the ‘T25’ restructure that’s designed to help it squeeze more value out of its assets. If ‘T22’ was about setting the ship in the right direction at Telstra, ‘T25’ is about the incumbent telco flexing its infrastructure muscles to carve out more value for shareholders and amping up its 5G push to reinforce its premium pricing in the market.

Both TPG and Telstra were keen to push the win-win aspect of the deal, in a rare outbreak of solidarity between two parties that have in the past engaged in fierce bouts on the regulatory front. And on paper, it looks like a win for regional consumers as well.

Consistent and reliable mobile coverage remains a major issue in regional and rural Australia, even with the National Broadband Network in action, and it would be tough for the competition regulator to argue against the deal’s potential to improve services for underserved communities.

It’s the sort of bespoke deal that the ACCC had hinted at in 2017 when it decided against forcing Telstra to share its network with its rivals, namely Vodafone Hutchison Australia (which is now operated by TPG Telecom). And with the deal catapulting TPG into second place on network coverage, the regulator would be hoping for a substantial response from Optus to ensure its two rivals don’t hog all the headlines on regional coverage.

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