TPG Telecom (ASX: TPM) released their annual results to the market today, recording a 13% decline in net profit. Revenue was relatively flat, but the company’s profits declined due to a large write down of 4G spectrum assets. The company expects next year’s financial results to bear the greatest impact of the NBN rollout, after which earnings will more likely normalise for a few years until the next wave of network technology hits the market.
TPG has been challenged by issues around 5G and the NBN (Credit: TPG)
TPG has had a volatile past year, with the company fighting a ruling by the ACCC that would block its merger with Vodafone’s Australian business. The ACCC argues that a merger would reduce competition with Australia’s telco space, by reducing the number of key players from four to three. TPG and Vodafone by contrast argue that their merger will create a combined group that can compete more effectively with Telstra and Optus, thus creating intensified competition between three market leaders instead of two.
The company is also a play on the US China trade war. This is because they shelved plans to build out a 5G network, following the ban on using technology from Chinese the telecom giant, Huawei. This has resulted in Telstra being ahead of the rest of the industry in rolling out 5G. It remains to be seen how long competitors will be delayed by the Huawei ban, given some other companies in the sector are already planning to use other providers of 5G infrastructure. Over the long term, any market share declines in profitable coastal cities will hit Telstra’s profitability, due to the low incremental user costs of mobile networks. Nevertheless, since TPG has rapidly gained market share over the past decade, it will be positioned to benefit handsomely from the transition to a multi-player telco market if it’s long term uptrend continues.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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