TPG says that it will no longer roll out an Australian mobile network, blaming the government’s decision to ban telcos from using Huawei-manufactured 5G equipment.
In a statement released this morning to the ASX TPG said that “due to factors outside TPG control” it would cease building a small cell-based 4Gmobile network — a plan originally announced in April 2017.
TPG said that it had selected Chinese firm Huawei to be its principal equipment supplier, in part because of a simple upgrade path to 5G. However, in August last year the federal government announced that it had given national security guidance to Australia’s mobile network operators about the use of vendors that were “likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law, may risk failure by the carrier to adequately protect a 5G network from unauthorised access or interference”.
Although not named publicly by the government, those vendors are understood to be Huawei and ZTE.
The government’s direction followed advice from Australia’s intelligence agencies. Head of the Australian Signals Directorate Mike Burgess in October 2018 said that the “stakes could not be higher” when it comes to 5G.
“This is about more than just protecting the confidentiality of our information – it is also about integrity and availability of the data and systems on which we depend,” Burgess said in a speech. “Getting security right for our critical infrastructure is paramount.”
The government’s announcement blocked a potential 5G upgrade path for TPG, the telco said.
“Since that announcement, TPG has continued to roll out equipment which it had ordered from Huawei prior to the Government announcement, but the Company has now reached the decision point for whether to place orders for additional Huawei equipment,” the company’s statement said.
TPG said that although it had been exploring ways of addressing the “problem created by the Huawei ban” it had concluded it did not make commercial sense to continue investing funds in a network with no 5G upgrade path. To date, TPG has spent around $100 million on the network rollout, fully or partially completing more than 900 small cell sites. It expects to incur additional capital expenditure of $30 million.
“The Board is not in a position at this time to announce any decision on its future strategy for TPG’s current spectrum holdings,” TPG said. “It will consider carefully all the options available and will update the market once decisions are made.”
“It is extremely disappointing that the clear strategy the company had to become a mobile network operator at the forefront of 5G has been undone by factors outside of TPG’s control,” TPG’s executive chairperson David Teoh said in a statement.
“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.”
“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,” Teoh said.
TPG’s announcement comes just a month and a half after the Australian Competition and Consumer Commission said it was yet to be convinced it should let the telco merge with Vodafone Hutchison Australia.
“Our preliminary view is that TPG is currently on track to become the fourth mobile network operator in Australia, and as such it’s likely to be an aggressive competitor,” ACCC chair Rod Sims said in a statement released in December.
“We therefore have preliminary concerns that removing TPG as a new independent competitor with its own network, in what is a concentrated market for mobile services, would be likely to result in a substantial lessening of competition. If TPG remains separate from Vodafone, it appears likely to need to continue to adopt an aggressive pricing strategy, offering cheap mobile plans with large data allowances.”
Vodafone and TPG have created a joint venture that was the second-highest bidder in the government’s sell-off of key spectrum for 5G services.
“TPG’s announcement is extremely disappointing for Australian consumers and businesses,” said Huawei corporate affairs director, Jeremy Mitchell.
“As predicted the Australian’s government’s 5G ban on Huawei will lead to reduced competition and higher prices for Australia consumers and businesses. It is not just higher prices, Australians will miss out on the competition that drives technology innovation.”
“This follows Vodafone’s recent comments that network deployment costs are now ‘soaring’ in Australia,” Mitchell added. “Australians will now miss out on cheaper and more affordable mobile services. Australians will also miss out on the world leading telecommunications innovation that other nations will be deploying.
“Huawei, Australia’s largest provider of wireless technology, has a 15-year track record in this country of delivering safe and secure technology and has always offered and been open to independent security auditing and testing.”