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TPG takes on rivals with mobile network

Internet provider TPG Telecom will build Australia's fourth mobile network for almost $1.9 billion after securing premium spectrum, sending Telstra shares plunging due to fears of a price war.

TPG secured mobile broadband spectrum for a hefty $1.26 billion in a government auction, and will spend a further $600 million over three years to build a mobile network that covers 80 per cent of the population.

Executive chairman and chief executive David Teoh said the spectrum acquisition is a "tremendous development for the long-term future of TPG", Australia's second largest fixed-line internet provider behind Telstra.

"We are uniquely positioned to leverage our success in the Australian fixed-line broadband market to drive the next phase of growth for TPG's shareholders and bring new competition to the Australian mobile market," he said.

Photo: AAP
Photo: AAP

The company expects significant cross-selling potential from TPG's 1.9 million fixed-line broadband subscribers and 500,0000 mobile customers, which currently use Vodafone Australia's network.

TPG's move into the mobile market - which is dominated by Telstra, Optus and Vodafone Australia - had an immediate impact on Telstra shares, which have hit a four and a half year low of $4.17.

Telstra was not eligible to participate in the latest spectrum auction, while Vodafone Australia secured some mobile spectrum for $286 million.

Vodafone Hutchison Australia chief executive officer Inaki Berroeta. Photo: AAP
Vodafone Hutchison Australia chief executive officer Inaki Berroeta. Photo: AAP

Optus missed out in the latest auction, citing its "financial discipline" and substantial holding of existing spectrum, company spokesman Andrew Sheridan told AAP.

He said TPG paid a lot of money for the spectrum, with Optus and Telstra paying about $500 million each for the same amount of spectrum in 2013, and for a shorter licence period of 11 years.

"This has gone for a very substantial price," Mr Sheridan said.

A Telstra spokesman said the latest investments show Australia has a "strong and competitive mobile market" under current regulation.

Telstra CEO Andrew Penn. Photo: AAP
Telstra CEO Andrew Penn. Photo: AAP

TPG shares are in a trading halt as the company completes a $400 million capital raising to help fund its spectrum acquisition.

The company - which has expanded via a merger with SP Telemedia in 2008 and takeover of iiNet in 2015 - said the Australian mobile industry generates earnings of about $8 billion.

It expects its mobile business to hit breakeven with only 500,000 subscribers, or market share of about two per cent.

The rollout will commence in 2018 with the deployment of equipment at 2,000 to 2,500 mobile network sites, plus small cell sites across the country, and take between two to three years to complete.

TPG is also in the early stages of rolling out a mobile network in Singapore, and has reaffirmed its forecast of underlying earnings between $820 million and $830 million in 2016/17, up from $775 million in 2015/16.

The company plans to fund the mobile network rollout and spectrum purchase over the next three years through a combination of operating cashflows and existing and new debt.

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