TPG Telecom and Optus forge landmark regional network deal to expand coverage

TPG Telecom (ASX: TPG) and rival carrier Optus Mobile will join forces to create a regional multi-operator core network (MOCN) and extend TPG’s 4G and 5G mobile network to reach 98.4% of the Australian population.

Under the terms of the $1.59 billion agreement, TPG will adjust its network from 755 sites in regional Australia to incorporate 2,444 Optus mobile network sites.

This will see the carrier more than double its national 4G coverage from 400,000 to around 1 million square kilometers, providing rural customers with a viable alternative to to Telstra (ASX: TLS).

Enhanced capacity and speed

Optus will pay around $420m to licence some of TPG’s unused network spectrum for the MOCN, delivering enhanced capacity, speed and service quality to all TPG and Optus retail, wholesale and government customers in regional Australia.

The agreement will also allow TPG’s mobile brands — including Vodafone, TPG, iiNet, Lebara and Felix — to better compete for regional customers as well as metropolitan customers who require regional mobile network coverage.

The MOCN agreement is expected to commence operating next year, subject to approval from the Australian Competition and Consumer Commission.

It will run for an initial period of 11 years, after which TPG will have the option to extend for a further five years.

TPG will gain access to the Optus 5G regional network as it is rolled out.

Greater choice

TPG Chief Executive Officer Iñaki Berroeta said the agreement with Optus represented a “major breakthrough” in the company’s ambitions to deliver greater choice and value to Australians.

“Network infrastructure sharing of this kind avoids unnecessary capital investment and high operating costs, meaning there is more value for shareholders and less cost to pass on to customers,” he said.

“This network sharing arrangement will reset the competitive landscape for mobile services in regional areas and provide Australians with more choice than ever before.”

The deal builds upon an existing passive equipment-sharing joint venture between TPG and Optus.

“It establishes a platform for the potential expansion of sharing arrangements which could unlock further capital and operating cost efficiencies and improve network services for our customers,” Mr Berroeta said.

Total payments

TPG’s total estimated payments to Optus over the term of the network-sharing agreement will amount to approximately $1.17b (net of spectrum receipts).

That figure is believed to represent around 33% of the costs that TPG would incur if it were to build, operate and maintain its own network in regional Australia.

TPG will pay Optus $1.59b in total service fees, comprising a fixed component of approximately $900m and additional fees to the value of $690m for the 2,444 new 5G sites.

TPG’s annual 5G site fee component will grow as Optus accelerates the upgrade of its regional network to 5G before 2030.

Underutilised spectrum

TPG is expecting to monetize its underutilised spectrum holdings in regional Australia during the term of the MOCN agreement.

The carrier will receive an annualised income of approximately $38m starting in the 2025 financial year.

Assuming a similar level of spectrum will be licensed to Optus over the 11-year term, the estimated receipts from Optus for this will total approximately $420m.

“This transaction will also allow us to monetise our spectrum holdings in regional Australia in ways that were not otherwise possible,” Mr Berroeta said.