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TPG TELECOM will build Australia's fourth mobile network after securing a Government contract for $1.9 billion.
In addition to securing a premium spectrum for $1.26 billion, the company will spend a further $600 million on building a mobile network that will cover 80 per cent of the population.
CEO of TPG, David Teoh, says the contract will be "fantastic" for the Australian mobile market as well as the company, the second largest fixed-line internet provider behind Telstra.
"We are uniquely positioned to leverage our 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," says Teoh.
"We believe that our mobile strategy will be complementary to our ongoing fixed line business, with the ability to bundle mobile and fixed services expected to have a beneficial effect on our already low fixed services customer churn."
TPG's churn rate (the number of customers leaving the group) was 1.4 per cent in the first half ended January 31.
TPG, a low-cost operator, will put its competitors in a tough place with the acquisition, as they will likely be able to undercut Telstra, Vodafone, and Optus whilst still offering a premium product to its customers.
The impact of TPG's announcement was immediately felt by Telstra, with their shares down almost six per cent to $4.30 in early trade.
Telstra was not eligible to participate in the network auction, but Vodafone Australia secured some mobile spectrum for $286 million.
TPG says it will fund the network over the next three years through a combination of operating cashflows and existing and new debt.
TPG shares closed at $6.66 on Tuesday and was placed in a trading halt on Wednesday pending the completion of a $400 million capital raising to help fund its spectrum acquisition.
The company is currently in the early stages of rolling out a mobile network in Singapore.
Business News Australia
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