GlobalData made the comment on Friday while also observing that TPG was facing headwinds in growing its revenue and there was “limited room to expand its margins”.
And according to the analyst firm "the impending merger with Vodafone Hutchison Australia is crucial for delivering business growth".
The proposed merger was announced in August 2018. And, in February this year, as reported by iTWire, TPG announced it had written down its mobile network assets by $76 million and reduced the value of the spectrum licences it holds by $92 million.
GlobalData noted that TPG reported a 1.5% year-on-year decline in total revenue to $1.24 billion for the first half which ended on 31 December 2018, but that it has been “successful in reducing costs to improve its margins including a reduction in employment and overhead costs”.
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“At this point, the best case scenario for TPG is for the merger with VHA to go through. The company has raised the stake by announcing on 26 February 2019 that it would cease the rollout of its Australian mobile network.”
Soh said TPG designed its mobile network based on small cell architecture and Huawei was chosen as the principal vendor for the network with a simple upgrade path to 5G, with TPG citing the Huawei ban as the main reason for giving up the network rollout since the upgrade path was now blocked.
“This announcement should convince the Australian Competition and Consumer Commission to give the green light since there will be no change in the level of competition. A combined TPG-VHA entity will be in a strong position to compete with Telstra and Optus to deliver a broader set of fixed and mobile services, targeting both enterprise and small and midsize business customers. This will give the entity more resources to invest in new technologies and services, such as 5G and IoT,” Soh said.
GlobalData says revenue opportunities for 5G are linked to industrial IoT solutions that companies are willing to pay for to achieve greater operational efficiency or create new revenues. This requires investments in areas such as software-defined networking, digital platforms for fast ordering and provisioning, and other capabilities such as security and edge computing.
The analyst firm says Telstra and Optus are both doubling down on these areas and TPG/VHA can’t afford to fall behind for too long if it wants to be a serious contender to the two tier-1 telcos in the enterprise space.
“In the short-term however, the reality is that TPG’s management team will have their hands full, either dealing with business integration, or working on Plan B – possible scenarios include selling its mobile assets, using it as a last-mile access for broadband services or finding other potential use case with its spectrum assets. Meanwhile, the company is in a holding pattern as it awaits the decision from the ACCC on the merger with VHA which is currently expected to be made on 9 May.”
