TPG abandons mobile plans

TPG Telecom has abandoned its ambitious plan to build Australia's fourth mobile network.

The network was supposed to be a small cell metro network using cutting-edge 5G technology. However, with Huawei, a major supplier of 5G technology, now banned from supplying network equipment for 5G in Australia, the economics of the network no longer stacked up. TPG claims it cannot build a network without the involvement of Huawei.

Rubbish. We doubt the withdrawal of one supplier has altered the mobile ambitions of the company. Rather, the decision to not build a network is aimed entirely at the ACCC, which has threatened to block TPG's merger with Vodafone because it might reduce competition.

By abandoning the proposed network, TPG has, at a stroke, removed that objection. The ACCC can hardly block the merger now because it will not affect market structure. 

Shares in both TPG and Telstra rose strongly today as the market anticipated that TPG's merger with Vodafone is more likely to be permitted.

The mobile strategy has been costly for TPG which has spent about $130m on network equipment across thousands of sites. It's not clear to what extent equipment already installed can be used by a combined TPG/Vodafone and TPG itself hasn't decided what to do with spectrum that was to be used on its network.

These are, however, relatively small concerns in the context of a merger that makes a lot of sense (see TPG: how good can it get?). Without a mobile network, TPG would struggle as a broadband only provider in an NBN world. The deal is now more vital than ever but the chances of success are now higher than before. HOLD.