• Following the Australian Competition and Consumer Commission’s (ACCC) decision to oppose the Telstra TPG network sharing agreement, TPG should be more concerned about its strategic importance.
• While impact to Telstra would be limited, TPG faces setbacks to its enterprise growth strategy in FWA, 5G SD-WAN, private cloud, and overall pricing strategy.
In February of 2022, Telstra and TPG entered into a ten-year network sharing agreement, subject to regulatory approval. However, nearly one year later, the ACCC has rejected the deal on anti-competitive grounds. The agreement would have seen Telstra grant TPG use of 3,700 Telstra mobile sites in regional and rural Australia, allowing TPG to enter new markets and moving its overall population coverage from 96% to 99%. Meanwhile Telstra would have been gained access to some of TPG’s spectrum for 4G and 5G services, boosting overall network capacity.
The ACCC argued that the decade long deal with lower competition and consumer choice by discouraging long term construction of additional telecommunications infrastructure. Both TPG and Telstra have submitted appeals Australian Competition Tribunal, arguing that the ACCC is incorrect in its assessment that it will lower competition. Regardless of the decision of the appeal, the deal overall is much more strategically important for TPG. While Telstra would love to gain additional spectrum without going through government auction, the company already controls the largest amount of mobile spectrum in the 5G band. TPG on the other hand was much more reliant on this deal to improve its competitive position in the overall Australian mobile services market.
While TPG still has strong overall mobile coverage in urban areas, including 85% 5G coverage in major cities, the company was planning on using the network sharing agreement to enter new markets with 5G based services, including business focused services like 5G fixed wireless access (FWA) and 5G enabled SD-WAN. For these services, 5G is meant to provide sufficient capacity and latency performance in areas that lack fiber broadband coverage. Many of these areas are in regional and rural Australia that would be covered by the network sharing deal, and TPG’s immediate access is now in jeopardy. Further, it could impact TPG’s plan to target verticals including mining, energy, and agriculture. The company has launched private cloud services in Perth and Queensland targeting these verticals with latency sensitive applications and data security concerns. However if TPG can not provide connectivity to remote sites, it could deter potential customers.
Further if the deal falls through, TPG will have build out its own network infrastructure. This will require time and a large increase in capital expenditure. TPG was already delayed in launching 5G services due to the Australian government’s decision to ban Huawei from mobile network infrastructure, TPG’s mobile equipment vendor at the time, as well as by the lengthy approval process for the merger of TPG and VHA. With this potential additional setback, it will delay TPG’s 5G rollout even further, diminishing its mind and market share for 5G services. Beyond that, TPG’s overall pricing strategy is to be the cheap and cheerful provider, however with unplanned CapEx burdens, the company may need to revisit this strategy to remain financially on track. TPG needs to develop an alternate strategy to grow enterprise revenues in these target verticals. It could consider partnering with a satellite provider, similar to Vocus’s deal with OneWeb, to achieve coverage quickly in rural areas. Further, it could double down on private 5G. The company is already working with Nokia on developing private networking solutions. The companies have even had successful trials developing 5G solutions for agriculture, namely a cattle counting solution leveraging 5G networks, and AI software running on edge.
This is also an opportunity for Optus, which had vocally opposed the network sharing agreement from the start, to win more business and enterprise deals in regional Australia while these markets largely remain a two horse race between Optus and Telstra.