Published on the 01/02/2019 | Written by Heather Wright

Easier road ahead for Vodafone merger?…

The Federal Government ban of Huawei equipment for 5G builds has claimed its first major casualty, with TPG Telecom abandoning the rollout of its mobile network, in which it had already invested AU$100 million.

The telco says the ban, which also blocked ZTE from the network build, would prevent the network from being upgraded to 5G.

The nascent network – Australia’s fourth mobile network – was based on small cell architecture, using Huawei because of the simple upgrade path to 5G offered by the vendor’s equipment.

“It does not make commercial sense to invest further shareholder funds in a network that cannot be upgraded.”

Equipment for 1,500 sites had been purchased prior to the August 2018 Government ban and had already implemented 900 small cells. TPG says it has already invested capital expenditure of around $100 million with a further $30 million committed.

“It’s extremely disappointing that the clear strategy the company had to become a mobile operator at the forefront of 5G has been undone by factors outside of TPG’s control,” TPG executive chairman David Teoh says.

“The company has been exploring if there are any solutions available to address the problem created by the Huawei ban but has reached the conclusion that it does not make commercial sense to invest further shareholder funds (beyond that which is already committed) in a network that cannot be upgraded,” TPG says.

The announcement of the abandoning of the mobile network comes as the Australian Competition and Consumer Commission continues its assessment of a proposed merger between TPG and Vodafone Hutchison Australia.

The merger plans, which would have created an AU$15 billion company, ran into difficulty late last year with the ACCC flagging concerns that it could reduce competition by removing a TPG as a fourth mobile network operator in the market.

The potential positive affect of abandoning the network on the merger plans was reflected in TPGs shares immediately following the announcement, with shares climbing to their highest since late December before softening off slightly but still remain well above figures seen since the ACCC’s concerns became public.

Last week the ACCC delayed its decision on the proposed merger to April due to a ‘delay in receiving information from merger parties’.

In announcing its decision to discontinue the network build, Teoh said “While TPG remains committed to the planned merger with Vodafone Hutchison Australia, the company must continue to make independent business decisions in the best interests of TPG shareholders pending the outcome of the merger process.”

TPG and Vodafone, in a joint venture arrangement, were among the big spenders in last year’s 5G spectrum auctions, acquiring 131 lots for AU$263 million.

TPG has AU$1.26 billion of 4G spectrum, acquired back in early 2017.

The company says it will consider options for the spectrum.

TPG has been designing and implementing the network based on small cell architecture since April 2017 .

“Over the past two years a huge amount of time and resource has been invested in creating and delivering on a strategy that would have positioned TPG very favourably to exploit the opportunities that the advent of 5G will present,” Teoh says.

The company says following the Huawei ban it continued to roll out equipment it had already ordered, but has now reached a ‘decision point’ for whether to place orders for additional equipment, prompting the abandonment of the network rollout.

The company didn’t make any comment on the fate of the parts of the network already competed.

Huawei said the announcement was ‘extremely disappointing’.

“As predicted, the Australian’s Government’s 5G ban on Huawei will lead to reduced competition and higher prices for Australia consumers and businesses,” Huawei Australia corporate affairs director Jeremy Mitchell says.

“It is not just higher prices, Australians will miss out on the competition that drives technology innovation.”

Both Huawei and ZTE were banned from participating in 5G network builds in August over ‘security fears’.

Huawei, which is the world’s biggest telecoms equipment maker, is facing increasing restrictions in access to Western markets amid claims that its equipment could be used for espionage. Those claims have been strenuously denied by Huawei.