Telstra's share price plunged more than 7 percent today on the news that a new rival is about to enter the mobile telecommunications market.
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The telco's share price fell to its lowest point in nearly five years after investors were shaken by TPG's announcement that it would spend $2 billion building out a new mobile network.
TPG splurged around $1.3 billion to access 700 MHz spectrum in the federal government's spectrum auction, the ACMA revealed today.
That money - plus an extra $600 million - will go towards a 4G mobile network that will reach 80 percent of the population once it is complete in three years time.
Telstra was banned from bidding in the auction because it already holds the maximum permitted amount of digital dividend spectrum. It has two 20 MHz bands of 700 MHz spectrum.
The company's share price hit a low of $4.17 at around midday today on an intraday high of $4.32.
At the time of writing it had rebounded to opening levels, sitting steady at $4.25.
TPG sees clear opportunity in the mobile market, where Telstra has long been dominant over rivals Optus and Vodafone.
The mobile business is Telstra's biggest earner, bringing in $5 billion in its most recent half thanks to an extra 200,000 domestic retail mobile services for a total customer base of 17.4 million.
TPG plans to cherry pick lucrative metropolitan areas for its 4G network and locate antennas on top of buildings with existing TPG fibre connections, in an effort to upsell its fixed subscribers onto mobile services.
The telco has 453,000 existing mobile customers as the result of an MVNO deal with Vodafone, as well as those it inherited as part of its acquisition of iiNet.
“This acquisition of 700MHz spectrum in Australia is a tremendous development for the long-term future of TPG,” telco chairman David Teoh said in a statement.
“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.
“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.”
