The Australian newspaper is today reporting that TPG Telecom Ltd (ASX: TPM) is interested in a full takeover of New Zealand's largest mobile phone operator Vodafone New Zealand.
The telecommunications and internet services sector has been consolidating recently in a Darwinian fight between mid-sized operators looking to grab market share by muscling others out of the market via scale and cost competitiveness.
As a lead player in this battle, TPG Telecom recently sold around $10 million worth of stock in rival fibre-optic internet infrastructure business Vocus Communications Limited (ASX: VOC), after unsuccessfully trying to block its merger with WA-based dark fibre and data centre business Amcom.
A recent merger between Vocus and retail broadband retailer M2 Group may also be increasing the heat on TPG Telecom to accelerate its move into the mobile market in order to diversify away from the increasingly competitive fixed-line broadband market that has been the backbone of its growth.
TPG Telecom already has commercial agreements with Vodafone Australia in place worth more than $1 billion to migrate TPG's mobile customer base to the Vodafone network and for Vodafone to use TPG's dark fibre network to provide internet services. Under the terms of the deal, TPG will also get the funds to invest in further fibre network expansion.
However, the opportunity to grow into the lucrative mobile market via a partnership or takeover deal for Vodafone's entire mobile businesses in Australia or New Zealand likely looks extremely attractive to TPG, which is a business that is already transferring its own mobile subscribers from the Optus to Vodafone network.
Any takeover of Vodafone Australia's business interests would require a big capital raising and more bank debt for a company's balance sheet that was recently leveraged to the tune of around 2.2x net debt / EBITDA after the acquisition of broadband provider iiNet.
TPG Telecom shares today sell for around $10.20 and investors would either pass them over as too expensive, or an interesting opportunity for a company that appears to be eyeing mobile as its next big growth opportunity. This in an effort to ultimately challenge less nimble, but still dominant mobile operator Telstra Corporation Ltd (ASX: TLS).
