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TPG’s ‘Aggressive’ Behaviour May Decide Fate Of Vodafone Merger

TPG Telecom’s record as a “new … aggressive low-cost player” may be key to whether its $15 billion merger with Vodafone gets approved.

Some analysts predict consumers will be worse-off if TPG is allowed to merge with Vodafone, giving them less choice in a telecommunications sector dominated by Telstra and Optus.

“TPG’s past behaviour as an aggressive player is important for us,” Rod Sims, the Australian Competition and Consumer Commission’s (ACCC) chair, said on Thursday.

But what did the ACCC boss mean when he mentioned TPG’s “aggressive” conduct?

In the last eight years, TPG has spent more than $3.5 billion to expand — by frequently paying significantly more than market value to bid for mobile spectrum and buy out other companies.

That’s about 43 per cent of its current market value, $8.2 billion.

iiNet and spectrum wars

The company’s most expensive purchase was its $1.4 billion acquisition of rival telco iiNet three years ago — a price that was 26 per cent higher than what it was worth.

iiNet had humble beginnings, run out of a garage in Perth by two players new to the telecom sector.

After weathering the dot-com bubble burst in mid-2000, iiNet went on to become a significant player, commanding a 15 per cent stake in the telecommunications market at one stage.

TPG already owned 6.25 per cent of iiNet at the time, and bought its remaining shares via a scheme of arrangement.

The next priciest deal for TPG was its $1.26 billion purchase of a slice of the nation’s 4G mobile spectrum in April 2017, outbidding Optus and Vodafone.

Industry analysts were surprised at the time how much TPG was willing to pay for two lots of 10 megahertz spectrum in the 700 MHz band.

Its ambition was to build a mobile network, at an extra cost of $600 million over three years, to service 80 per cent of the Australian population.

The Australian Communications and Media Authority (ACMA) conducted this auction, and its reserve price was about $857 million — meaning the TPG paid a 32 per cent premium.

Fibre optics, the cloud and submarine cables

However, TPG’s corporate takeovers were not confined to Australia.

It paid $450 million to buy fibre network operator AAPT from Telecom New Zealand in late-2013— at a premium price once again.

At the time, it was 6.4 times more than AAPT’s “current recurring annualised EBITDA [earnings before interest, tax, depreciation and amortisation] run-rate of approximately $70 million,” Telecom said in a statement.

TPG purchased, as part of the deal, infrastructure assets such as an 11,000 kilometre fibre optic cable network, which extended across six Australian states and territories.

Back in 2011, TPG expanded into cloud computing by taking over a small company called IntraPower for $12.8 million — more than double its market value.

TPG also acquired, in March 2010, a fibre optic network and the Pipe Pacfic Cable, a 6,900 kilometre submarine cable system connecting Sydney to Guam.

The telco did so by taking over PIPE Networks for $373 million — 29 per cent higher than PIPE’s average share price in the previous six months. – ABC News

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