Telco TPG could emerge as Australia's fourth mobile network - competing with Telstra, Optus and Vodafone - amid rumours the company has registered for the federal government's spectrum auction.
The government hopes to reap billions from the sale of radio frequency spectrum, which is used by telecommunications companies, at the auction that started on Tuesday.
At TPG's recent half-year results presentation, the company's media-shy chief executive David Teoh would not comment on speculation his company was a bidder. But a senior telco industry executive told BusinessDay TPG had registered for the spectrum auction.
It is not clear whether TPG is interested in the 720-megahertz spectrum, used for the 4G superfast mobile network, or the 2.5-gigahertz spectrum, which is for wireless broadband.
In a note to clients, Morgan Stanley analysts Mark Goodridge and Andrew McLeod say the spectrum auction presented an opportunity for TPG to enter the mobile market, putting the odds of such a move at one in five.
The analysts explain that Telstra, Optus and Vodafone will not acquire the full spectrum on offer at the auction, which leaves open the possibility for TPG to acquire leftover spectrum.
And the internet services provider is in robust financial health. It carries little debt and just posted $78.3 million in half-year profit, a 41 per cent increase from last half-year.
TPG is already offering mobile services as a virtual operator, piggybacking on Optus' network. It has 300,000 subscribers.
More important, the move will allow TPG to have greater control over its mobile strategy and ensure it does not lose the ability to offer bundles that include mobile.
Morgan Stanley's analysts believe the best possible entry strategy for TPG is through an alliance with Vodafone. The partnership would allow TPG to rent Vodafone's mobile towers as well as grant it access to Vodafone's retail network.
Mr Goodridge and Mr McLeod also speculate that such a partnership would offer Vodafone an exit strategy from the Australian market, where it has had well-documented network problems.
The analysts are upbeat on the prospect of TPG as a fourth mobile operator, saying the telco could gain 7 per cent of the mobile market on the back of an aggressive pricing strategy. The telco could earn a cash profit of $17 million to $33 million three years after launching the services.
However, TPG's foray into the mobile market could be disruptive for the mobile industry and put pressure on the sustainability of Telstra's dividend, they warn.
Morgan Stanley's analysts speculate Telstra could lose 7 per cent of mobile market share under a super-bearish scenario that would mean Telstra could "struggle to maintain its current 28¢ dividend".