Telco share prices rally after TPG hangs up on mobile
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Telco share prices rally after TPG hangs up on mobile

TPG Telecom executive chairman David Teoh's revelation he will stop building Australia's fourth mobile network has sent telecommunications companies' share prices soaring, with industry experts believing it will make a planned $15 billion merger with Vodafone Hutchison Australia more likely and end a mobile price war.

Telstra had one of its strongest trading days in a decade on Tuesday, with a 7.77 per cent jump in its share price to $3.19. TPG jumped 3.02 per cent to $7.17 on the back of Mr Teoh's announcement that the telco was giving up on building a mobile network after more than $100 million in capital expenditure. The S&P/ASX 200 Index fell 0.5 per cent over the day.

TPG's share price surged despite revealing the demise of its mobile network.

TPG's share price surged despite revealing the demise of its mobile network.Credit:Nine

There has been intensifying competition in the mobile space, causing major headwinds for providers Telstra, Singtel Optus and Vodafone Hutchison Australia which are facing eroding margins as they drop prices and increase data inclusions to hold onto their customers.

TPG's aggressive push to provide a fourth network with low-cost $9.99 unlimited plans at launch has been considered a major threat to these already-squeezed providers. When TPG announced the network roll out in 2017, Telstra's share price took a 7 per cent hit.

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However, TPG's now-cancelled plans have been under close scrutiny from the competition regulator, which recently delayed making a decision on whether to stop the planned merger with Vodafone.

One of the major issues being considered by the Australian Competition and Consumer Commission (ACCC) is a potential competitive issue with Vodafone already operating a mobile network and TPG building a new one.

In a public statement of issues in December, the ACCC was concerned that the merger could result in "higher prices for wholesale services; and more restrictive conditions for wholesale customers".

A decision on the merger is due in April and ACCC chair Rod Sims said the network's termination would now be taken into consideration with both companies' moves into mobile and fixed internet to be looked at carefully from a long-term perspective.

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"When you’re in the business of assessing mergers you need to look at what information you were getting before a merger was on the horizon," Mr Sims said.

"We have to think about what the telco market will look like in the future with convergence," he said. "This was already a complex merger to assess."

He declined to say whether TPG's move away from mobile would be considered favourable for the merger, however industry sources believe the decision has removed a major hurdle ahead of a decision.

TPG executive chairman David Teoh said the decision to stop the mobile network rollout was made "solely on the factors beyond our control" rather than to assist the merger, citing a government ban on Chinese provider Huawei from participating in 5G network roll outs locally as the main issue.

"The ACCC consideration is not part of this decision process," he said. “We have to look at all options. We are in a very difficult position.”

Vodafone chief strategy officer Dan Lloyd said in a statement the telco remained "committed" to the merger regardless of the network rollout. Vodafone and TPG jointly own 5G radio-wave spectrum, although it is not clear what TPG will do with its share should a merger not go ahead.

"As we’ve always said, increased investment requires increased scale. The merger has the potential to create a strong third player in the Australian market, including in 5G," Mr Lloyd said.

Independent telco analyst and commentator Paul Budde said it "looks like an easy way out for TPG" helping it to avoid being seen as duplicating the Vodafone network.

"It will save the combined operation significant costs," Mr Budde said.

"Whatever the final merger will look like it will affect Telstra. However, the more the TPG part gets weakened the better for Telstra," he said.

Telstra has been contacted for comment.

Jennifer Duke is a media and telecommunications journalist for The Sydney Morning Herald and The Age.

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