Low-cost provider TPG Telecom has just blindsided Australian telecoms companies by buying up a chunk of its 4G

Oliver Gill
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Vodafone's Australian operations are a joint venture with the owner of the UK's Three mobile network CK Hutchison (Source: Getty)

Australia is facing its own version of an Indian mobile telecoms market shake-up after a low-cost internet provider blindsided the main providers and bought up a huge chunk of the country’s 4G capacity.

TPG Telecom, a third owned by Malaysian-born David Teoh, announced plans to build a £1.1bn network to compete with the likes of Vodafone, Telstra and Singapore Telecommunications.

The firm spent A$1.3bn (£756m) on buying up 4G capacity sold by the Australian government overnight. TPG said it will spend a further A$600m on building a network to reach 80 per cent of the Australian population.

Read more: Vodafone to use $579m of cash from Indian merger to pay down debt

Telstra, which has a 39 per cent market share in Australia but was not allowed to bid in the auction, saw its share price plummet around 7.5 per cent in trading as investors worried the country could be facing a price war.

Singapore Telecommunications shares fell as much as 2.6 per cent.

“Margins in the mobile market are going to be squeezed,” telecoms expert Paul Budde told Reuters.

“[It] has a major effect on Telstra because they still are the one with the best margins in the wireless market.”

Indian parallels?

The news is likely to worry Vodafone investors as UK markets open this morning. The entrance of a low-cost provider in Australia could play havoc with the market in the same way the Indian market was shaken up last year with the entrance of Jio.

Backed by India's second largest listed firm, Reliance Industries, Jio set about slashing costs and squeezing the likes of Vodafone, which was already struggling to get a foothold in the mammoth Indian market.

Read more: Investors buoyed by reports of Vodafone talks with Liberty Global

The disruption in India ended Vodafone's listing plans and forced it into a painful $5bn writedown of its investment. It ended in January with the FTSE 100 giant merging its local operations with the country's second largest operator Idea Cellular.

Meanwhile, across the Tasman Sea, New Zealand regulators blocked Vodafone's planned NZ$2.4bn merger with Sky as part of the group's push into so-called quad play services – where telecoms firms combine tradition mobile and fixed line offerings with broadband and pay-TV services.

Read more: Vodafone to create 2,100 new UK jobs

Vodafone's Australian operation is a joint venture with the owner of the UK's Three network CK Hutchison. It picked up some additional 4G capacity as part of the auction during Australian trading hours, spending A$286m.

Vodafone declined to comment on the move by TPG Telecom.

The Australian Communications and Media Authority, which ran the auction, said the total proceeds of more than A$1.5bn beat the A$857m reserve.

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