TPG Telecom fibre optic plan not threatened by ACCC

The regulator will allow TPG to lock out rivals.

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As I reported in this article, TPG Telecom (ASX: TPM) has announced plans to start rolling out fibre to the basement (FTTB). The brilliance of this plan is that now that the NBN is not going to be fibre to the premises, there is no reason that customers would ever bother switching to the NBN.

TPG has some major competitors that could also roll out optical fibre to buildings. Telstra (ASX: TLS), Singapore Telecommunications' (ASX: SGT) Optus and iiNet (ASX: IIN) all own fibre infrastructure. However, once a building is connected to fibre, there is little reason why another company would duplicate the connection. That's why some commentators suggested the Australian Competition and Consumer Commission (ACCC) might have an issue with the plan.

Speaking to the Australian Financial Review, chairman of the ACCC, Mr Rod Sims said, "If you have a number of players doing TPG-like things then they in a sense self-regulate because if I clobber you here the other guy will get you back over there," he said. "It's less of a ­problem compared to having a ubiquitous bottleneck as Telstra has with its copper wire."

TPG doesn't need to lock out its rivals to profit from being a first-mover. Once it connects a building to fibre, it's likely that most if not all of the residents will switch to the fibre plan eventually. As Mr Sims points out, owning parts of the fibre network will be a useful bargaining chip in the future.

It's likely that companies without much fibre will still be able to grow (the threat of regulatory action will see to that), but in this Fool's opinion, the companies that own the fibre infrastructure will have the upper hand. In any event, the CEO of TPG, David Teoh, has already promised to provide wholesale access to the network.

Ironically, existing government legislation designed to protect NBN Co will limit competition in the fibre race. As part of the NBN package, the Telecommunications Act 1997 was amended to require that any fibre networks provide open and equivalent access to the network. This was designed to prevent companies like TPG from building a fibre network to high-density areas before NBN Co. However, the Act provides a few exceptions, including for networks that do not extend more than 1 kilometre beyond fibre that was in existence prior to 2011.

This would allow TPG to connect hundreds of thousands of residences and not be subject to the equivalent access provisions for those residences. However, there is a credible argument that private companies should be allowed to (profitably) roll out fibre to metropolitan areas. Due to the change of government, it is possible that these laws will be amended.

Foolish takeaway

TPG is perfectly positioned to take advantage of this public policy mess. In my opinion, it is likely that TPG will end up owning a significant chunk of Australia's communications infrastructure. TPG shares are up over 80% in the last few months, but this stock still deserves a spot on your watchlist.

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Motley Fool contributor Claude Walker does has an interest in TPG Telecom through a managed fund. Find him on Twitter @claudedwalker.

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