Telstra plunges as rival TPG wins mobile spectrum auction

Shares in Australian telecommunications provider Telstra are facing one of their biggest one-day falls on record after rival TPG Telecom announced it would build its own national mobile network.

TPG, which won an auction for a slice of mobile spectrum in the 700Mhz band, said it would build the network for $A1.9bn, ($1.42bn) comprising $1.3bn – paid in instalments – for the mobile spectrum and A$600m for the rollout of capital expenditure.

The prospect of another competitor muscling in on the former government monopoly’s turf has put the wind through Telstra shareholders.

The stock is down 6.5 per cent in mid-morning trade in Sydney, which – by a few fractions of 1 per cent – is its biggest one-day fall since mid-February, when it announced a 14 per cent drop in its interim profit and investors lost some confidence in its promises to generate growth.

However, given Telstra’s historical reputation as a defensive stock, this is a big share price move. Prior to today, there have only been nine other occasions since the company was floated in 1997 when shares have closed lower by more than 6 per cent.

Shares are at their lowest in four-and-a-half years, and at their worst were down 7.2 per cent.

TPG shares were halted as the company launched a A$400m capital raising to, firstly, pay down debt, with the remainder being put toward capex and spectrum payments relevant to its new plan.

David Teoh, TPG’s reclusive chief executive, said in a statement to the ASX that the purchase of the spectrum was a “tremendous development” in the long-term future of the company.

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.

TPG said, as a new entrant into this market, it expected a number of advantages over the other three incumbent operators Telstra, Optus and Vodafone. At present, the company buys access to the network for its mobile products through Vodafone.