Singapore Telecommunications
More Competition Down Under
- Australian Communications and Media Authority (ACMA) has completed its latest spectrum auction for the 700MHz frequency spectrum. The auction started on 4 Apr 17 and lasted for a week with competitive bids from three companies, namely Singtel Optus, Vodafone Hutchison Australia (VHA) and TPG Telecom.
- TPG paid a hefty price to gain entry into mobile in Australia. TPG has secured 2x10MHz of the 700MHz frequency spectrum at A$1.26b (A$2.75/MHz/population). VHA secured 2x5MHz at the reserve price of A$285.9m (A$1.25/MHz/population).
- TPG becomes the fourth mobile operator in Australia. TPG plans to roll out its own mobile network to cover 80% of the population in Australia by investing capex of A$600m over the next three years. It intends to leverage on its strength in fixed broadband to launch bundled mobile + fixed broadband packages. Management expects its new mobile business to break even at the EBITDA level with 500,000 customers. TPG also owns 20MHz of the 2500MHz frequency spectrum that it secured during the previous auction in 2013 for a much lower price of A$13.5m.
- Telstra was not allowed to bid as it has already secured sizeable chunks of the 700MHz spectrum during the previous auction four years ago (2x20MHz of 700MHz spectrum from previous auction). Optus participated but did not secure any of the 700MHz spectrum (2x10MHz of 700MHz spectrum from previous auction).
- Impact on Singtel. The entry of TPG Telecom introduces a fourth mobile operator in Australia. It also means that Singtel has to compete with TPG in both Singapore and Australia. Optus accounted for 21.3% of Singtel's group PBT in 3QFY17. The increased uncertainties could exert downward pressure on its share price.
- Impact on TPG. TPG paid a hefty price tag of A$1.26b. Comparatively, VHA paid a much lower price of A$1.25/MHz/population against TPG's A$2.75/MHz/population. Industry sources say it is the most expensive spectrum in recent history.
- TPG has upped the ante. Its operational and financial risk has increased as it has to roll out and finance network construction in both Australia and Singapore. TPG has embarked on a 1-for-11.13 rights issue at A$5.25 (20.2% discount to the last closing price) to finance the expansion.
