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After last week's announcement that TPG Telecom (ASX:TPM) had purchased a government contract to build Australia's fourth mobile network, the company's shares have been dumped by investors, wiping a billion dollars off its market value.
TPG paid $1.26 billion on the government contract for a high-quality chunk of the Australia's 4G mobile spectrum, and will spend a further $600 million on building their own mobile network.
The company entered a trading halt last Wednesday prior to the announcement and resumed trade on Tuesday morning.
At around 3pm Tuesday (AEST) TPG shares crashed 18 per cent, down to $5.41, suggesting shareholders are not too confident in the telco's ability to pull off the network.
The drop in share price follows TPG's attempt to tap shareholders for the $400 million required to complete the new network.
After TPG announced the purchase of the new network last week, Telstra's (ASX:TLS) shares dropped six per cent.
Currently, Telstra's share price is down 3.6 per cent to $4.01.
TPG's sharp decline implies that shareholders are not sure that its new network, which promises low prices and the utilisation of its fibre optic infrastructure, can compete with its rivals Telstra, Vodafone, and Optus.
Further uncertainty may be the result of an upcoming ACCC decision to force network providers to give consumers free access to the network, meaning the only distinguishing feature of each provider will be the price point.
If the domestic roaming regulations are put in place by the ACCC, Telstra is set to potentially lose $546 million.
TPG's network will take approximately three years to complete, and will cover 80 per cent of the Australian market.
Analysts have suggested that shareholders are spooked by the excessive price the telco paid for the network, as well as a lack of confidence that the implementation will ultimately be profitable.
Business News Australia
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