Opinion: What difference will TPG’s mobile network make?
Will TPG’s freshly announced mobile network really shake up the mobile scene?
TPG caused some shockwaves this morning when it announced via the ASX that it would use its freshly acquired 700Mhz spectrum licenses as the springboard to launch an entirely new mobile network in Australia starting in 2018.
That’s certainly a shakeup of the existing order, because while there are numerous mobile brands, there have to date only been three actual networks in play.
Telstra is the big incumbent locally, while Optus' network is the most widely used by MVNOs, followed by Vodafone, which also announced its own 700Mhz gains this morning. By a quirk of coincidence, TPG’s existing SIM-only mobile plans are offered over Vodafone’s 4G network, which means that TPG customers could potentially switch from fresh 700Mhz Vodafone spectrum to fresh 700Mhz TPG spectrum once TPG's own network launches.
TPG holds spectrum licenses in the 1800Mhz and 2.5GHz bands and has done so for some time, so the news that it would use additional spectrum to launch as a fourth carrier should in some sense be no great shock. Telstra shares apparently took a tumble, which isn’t surprising when you consider it’s the biggest player and TPG’s customers will have to come from somewhere. What I’m more interested in is where TPG’s broad strategy lies and what that will mean for the Australian mobile market in the near future. Realistically, working that out involves answering a few questions.
When will the network actually go live?
TPG’s announcement states that it will spend some $600 million over 3 years starting in 2018 to roll out its network. Part of that timing no doubt relates to when it can actually start to leverage those 700Mhz spectrum holdings. TPG’s bid for the spectrum grants it access from 1 April 2018 through to 31 December 2028 at a cost of just over $1.2 billion.
TPG is dropping serious money in other words, but it’s not an absolute given that TPG Mobile packages on its own network will launch as of April next year. Network rollout and deployment is no casual affair, as any telco could tell you. Even re-engineering isn’t a trivial matter, as Vodafone experienced when substantially rebuilding its network following the whole Vodafail debacle.
TPG isn’t entirely starting afresh, given it has substantial experience in infrastructure used around fixed line broadband networks, and it has signalled that it will use that expertise in its rollout. Still, you’d be looking at more than a year pretty safely before TPG would go live to market with products for consumers.
What kind of price will TPG settle on?
TPG’s brand strategy has always revolved around a value-centric message. If you opt for TPG broadband, the promotion is all about the unlimited packages, and always has been, although TPG does own other ISP brands (via its iiNet acquisition) that play a more premium game. Its current mobile SIM-only products echo this kind of thinking, but there’s a big difference between buying capacity from an existing network at wholesale rates and running your own mobile show from start to finish.
The hope here would be that TPG might ignite something of a price war at the more cost-conscious end of the market. I’d be genuinely surprised to see TPG target premium inclusions such as sports streaming rights or free streaming caches in its new mobile products.
The problem here is that while TPG had considerable success offering unlimited ADSL bundles in an era where many ISPs implemented quotas that revolved around peak or off-peak usage, in mobile terms, the value proposition of calls and texts is essentially totally deprecated.
You can already pick up an unlimited calls and texts package for very little money, which means that the value battlefield is in data. TPG could go in aggressively with data deals, and especially on excess usage quotas as one method of attack. The current industry standard is $10/GB, and if TPG is willing to burn a little cash to gain subscribers by setting a lower price, it could see those rates tumble. Even if you don’t jump ship to TPG that could be good news if it causes prices to fall across other carriers as they scramble to compete.
Don’t expect unlimited data
There’s a lot of noise around the concept of an "unlimited" data package plan, and TPG has history there, but I’d be flat out stunned if that was a mobile path it went down, simply because it’s likely the only profit leverage it has.
The ACMA has rather definite rules about what constitutes "unlimited" in the Australian market, so a split 4G/2G type deal, as you see from some American "unlimited" carriers just wouldn’t fly here - especially as 2G itself is going to be entirely dead long before TPG ever launches.
What we can expect to see, especially given its ASX statement, is that TPG will aggressively bundle both its mobile and fixed line broadband products, both on its own FTTB network and the NBN as a single package deal to consumers. You'll probably see unlimited data on your fixed line connection, but don't expect it on your mobile.
What about 5G?
TPG’s release to the ASX notes that one of its benefits in the rollout is that it its "able to deploy current advanced technology in its network" with "no legacy generations of equipment to support". The timing around TPG’s launch also puts it squarely in the timeframe of the next big evolution in mobile technologies, namely 5G.
All of the existing networks already have their 5G strategies in place, and with licenses for 700Mhz that run through to near the end of the next decade, you’ve got to figure it’s in TPG’s plans as well. The question here is to what extent TPG plans to implement existing 3G or 4G technologies as distinct from 5G.
One approach could be to launch as a purely "new" 5G network, but that runs the risk of slow adoption as 5G devices will require entirely new consumer hardware. If you wanted to slurp up lots of customers quickly to make your money back, limiting their access doesn’t feel smart.
Back at the birth of 3G in Australia, Hutchison Telecom launched here as "3", offering 3G-only services with a fallback to Telstra’s 2G before burning through a lot of money and finally merging with Vodafone. TPG loves an acquisition, but I doubt it has got much patience of the idea of merging with anybody at all.
SIM only or handsets?
To date, TPG’s play in the mobile market has been purely for SIM-only products. That’s a growth market in Australia, but even the SIM-only players have dabbled in handsets, as amaysim is doing currently with its Galaxy S8 promotion.
With an entire network to support, there’s an allure for a telco to offer handsets and longer-term contracts to seal customers in, not to mention relying on the "lazy tax" effect of consumers sticking with a telco once their contracts are up. There’s no mention in the ASX listing about which way TPG will jump, and to be fair it’s very early days for such considerations.
The not-so-big coverage question
TPG’s statement to the ASX indicates that its intent for its network is to offer coverage to cover 80% of the Australian population. That’s a careful figure, and one of the type that telcos love.
It’s also substantially lower than any of its network competitors, all of who claim more than 95% population coverage for their existing 4G/3G networks. It’s also vital to break those figures out into what they really represent, because population coverage is a very long way away from representing anything close to landmass coverage. Australia is a vast continent, but in demographic terms, we all mostly cling to the coastline with particular concentration around the capital cities. ABS statistics suggest that more than half the Australian population is located in NSW and Victoria alone.
That’s what makes TPG’s 80% coverage figure particularly interesting. In strict number terms, it’s the equivalent of saying you would provide service to the entire country excluding (more or less) the entire population of Queensland. Or that you serviced the entire Eastern side of Australia, but nothing across WA, SA, NT or Tasmania at all. Somehow I doubt that's the marketing strategy that TPG will pursue, but in numbers terms that's what it realistically means.
That coverage figure has some potentially problematic effects for anyone who travels around Australia with a TPG phone. It suggests that unless TPG can cut a deal with one of the other three telcos for regional phone access, it might be a telco that works great in Sydney and Melbourne, but not many other places at all, and not at all in between big cities on the highways.
One strategy here could be to join Vodafone in pressuring the ACMA to declare so-called "domestic roaming" as a service, something that incumbent Telstra is seriously opposed to. Being able to hop onto a rival’s network because the ACMA says so is something that would make a lot of sense to a new player like TPG as it competes for Australian mobile consumers.