Is the TPG Telecom Ltd (ASX: TPM) share price a buy after the news this week of the NBN to give service providers more bandwidth and higher speeds at no extra cost.
Since the pre-open price on Wednesday morning, the TPG share price has grown by 6%. That's a quick rise for a defensive utility company.
The NBN has been a big drain on profit for telcos like TPG and Telstra Corporation Ltd (ASX: TLS). TPG does have somewhat of an advantage compared to its competitors because it has lower costs, which means it can offer lower prices or have better profit margins compared to others.
We don't yet know what the telcos will do with the improvement of bandwidth and pricing, but you'd imagine some of the windfall will stay with the telcos, so TPG is definitely going to be a beneficiary. People can't go without internet, so the earnings are very defensive.
But the biggest thing that could boost the TPG share price over the next few months is a potential merger with Vodafone Australia which would create enormous synergies, it would also mean TPG gets access to Vodafone's 5G mobile network.
I think 5G will steadily replace the NBN over the coming years as capacity and reliability improves – households may decide just to go for a wireless broadband option in their house.
But it really depends whether TPG's appeal is successful or not because the ACCC initially stopped the merger going ahead.
Foolish takeaway
TPG is trading at 23x FY20's estimated earnings. It's certainly not cheap but if the decision goes TPG's way it could get a big boost. But, I don't think it's the best opportunity on the ASX unless the merger goes ahead.
