Wednesday, 12 April 2017 12:01

Govt windfall as TPG pays $1.2b, Vodafone $286m for spectrum Featured

By
David Teoh, TPG David Teoh, TPG

TPG has paid a whopping $1.26 billion for two lots of 10MHz  in the 700MHz spectrum auction, with Vodafone also shelling out $286 million on buying up the previously unsold spectrum.

The auction has given the federal government a windfall of $1.55 billion in total revenue from the sale.

TPG purchased the 2 x 10 MHz lot for $1.26 billion and VHA purchased the 2 x 5 MHz lot for $285.9 million in the auction conducted by the Australian Communications and Media Authority  for unsold spectrum from the 2013 digital dividend auction.

TPG says it will fund the capital expenditure for the rollout of a $600 million mobile network and the spectrum payments over the next three years through a combination of operating cashflows, existing and new debt facilities.

The company has also launched an accelerated non-renounceable pro-rata entitlement offer to raise $400 million to be used to pay down debt.

TPG’s executive chairman and chief executive David Teoh says acquisition of 700MHz spectrum is a “tremendous development for the long-term future of TPG”.

According to Teoh, TPG is uniquely positioned to leverage its 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”.

TPG sees its mobile strategy as complementary to its ongoing fixed line business, and Teoh says the ability to bundle mobile and fixed services is expected to have a beneficial effect on the company’s already “low fixed services customer churn”.

Teoh also said that TPG expected to benefit from numerous “new entrant advantages” relative to the incumbent operators, including by:

  • Being able to deploy current advanced technology in its network
  • Requiring fewer mobile towers
  • Having no legacy generations of equipment to support; and
  • Having no existing customer revenue to protect.

In a statement announcing its spectrum acquisition, Vodafone chief strategy officer Dan Lloyd said the purchase of spectrum was at the reserve price set for the auction and represented a payment of $1.25 per MHz, per head of population.

Lloyd said the purchase was on the same terms VHA proposed to government in 2015.

In 2015, Vodafone initially proposed to buy the spectrum outright for $571.1 million or in three instalments for a total of $594.3 million.

Lloyd also confirmed Vodafone’s acceptance of the ACMA’s offer to renew its 2100 MHz spectrum for $544 million, including 2 x 25 MHz in Sydney and Melbourne.

“Certainty over the 2100 MHz spectrum further reduces the need for incremental spectrum in the next few years. In metropolitan areas, we now have the second largest metropolitan low-band spectrum holding, and the largest holdings in the key 1800 MHz and 2100 MHz bands,” Lloyd said.

Bidding pitched Optus, Vodafone and TPG against each for the 700MHz spectrum, but Optus was unsuccessful.

Australia’s largest telco Telstra was barred by the federal government late last year from participating, in the interests of ensuring competition in the telecoms sector.

The government acted on the advice of the competition watchdog, the ACCC, which had said that mobile users would be better served if the remaining spectrum was bought by Optus, Vodafone or TPG.

Licences for the 700 MHz band are issued for a term of 11.75 years and will commence on 1 April next year, expiring in December 2029.

The ACMA has said the winning bidders can choose to pay for the spectrum by 31 January 2018 in one amount, or in three annual instalments starting in January 2018.

The auction of the 700 MHz unsold lots began on 4 April and the ACMA acting chairman Richard Bean says the additional spectrum will help industry meet ever-increasing demand for high-speed wireless broadband.

“The public has realised record rates of return from the sale, and should now benefit from the services this 700 MHz spectrum can provide.

“The sale of the remaining unallocated portion of the 700 MHz ‘digital dividend’ spectrum brings an important chapter in Australian economic reform to a successful close.

“It completes the digital dividend process begun in the 1990s, with the progressive conversion of free-to-air television from analogue to digital technology enabling much better TV and a massive boost to high-speed wireless broadband in Australia.”

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Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

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