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TPG Telecom: Australia’s fourth mobile company?

Telco TPG Telecom (ASX: TPM) could be about to become Australia’s fourth mobile network, with rumours suggesting the company has registered for the federal government’s spectrum auction.

TPG’s chief executive and largest shareholder, David Teoh is reported to have refused to answer questions, at the company’s recent half-year results presentation, on speculation that his company was a bidder. The Sydney Morning Herald (SMH) reports that a senior telco executive has confirmed that TPG had registered for the auction.

The government is hoping to raise billions from the sale of radio frequency spectrum used by telecommunications companies for mobile networks and wireless broadband. At this stage, it’s unclear if TPG is interested in the 720 megahertz spectrum used for the 4G mobile network, or the 2.5 gigahertz spectrum, used for wireless broadband.

Analysts have suggested that Telstra Corporation (ASX: TLS), Singapore Telecommunications (ASX: SGT) subsidiary Optus and Vodafone – partly owned by Hutchison Telecommunications (ASX: HTA) – will not buy up all the spectrum available, leaving TPG to buy any leftovers.

TPG is currently a virtual mobile operator, selling mobile phones and offering mobile plans that use the Optus network, and has around 300,000 subscribers according to the SMH. Analysts argue that an aggressive pricing strategy by TPG could be disruptive for the mobile industry and see Telstra lose some of its dominant market share.

The issue for TPG is whether it would rent existing mobile towers from one of the big three – that’s if they would be willing of course – or whether it would build its own network. The last scenario appears unlikely as the costs would run into the billions, something that may be beyond TPG at this stage. A deal with struggling Vodafone would probably make the most sense.

Foolish takeaway

The secret auctions began yesterday and will likely run for several weeks, with results known in mid to late May. For TPG, the move will give it greater control over its mobile strategy, and allow it to continue offering bundled deals that include mobiles.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in TPG and Telstra.

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