Telstra (ASX:TLS) share price rises on surprise TPG deal

Telstra and TPG are joining forces

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Key points

  • Telstra and TPG have announced a surprise deal
  • TPG will gain access to around 3,700 of Telstra’s mobile network assets in regional and urban fringe areas, increasing its current 4G coverage from around 96% to 98.8% of the population.
  • Telstra expects to generate $1.6 billion to $1.8 billion in revenue over 10 years from the tie-up

The Telstra Corporation Ltd (ASX: TLS) share price is edging higher today after announcing an unlikely partnership.

At the time of writing, the telco giant's shares are up 0.5% to $3.93.

Why is the Telstra share price rising?

The Telstra share price is rising today after it announced a deal with archrival TPG Telecom Ltd (ASX: TPG).

According to the release, Telstra and TPG have signed a ground-breaking ten-year regional Multi-Operator Core Network (MOCN) commercial agreement. This agreement will provide significant value to Telstra's wholesale mobile revenues, while providing TPG's subscribers with 4G and 5G services within a defined coverage zone across regional and urban fringe areas.

Under the deal, TPG will gain access to around 3,700 of Telstra's mobile network assets, increasing TPG Telecom's current 4G coverage from around 96% to 98.8% of the population. Whereas Telstra will gain access to TPG's spectrum across 4G and 5G, which will allow it to grow its network, increase capacity and continue to provide the country's largest and fastest network.

"Significant value to shareholders"

Telstra's CEO, Andrew Penn, believes the deal provides significant value to shareholders and customers and was a continuation of its strategy to maximise the utilisation and monetisation of its assets.

He commented: "This additional spectrum will mean that all Telstra customers will continue to experience Australia's best and fastest network across the country, in combined 4G and 5G speeds. In particular, the spectrum agreement will ensure that regional and rural customers will now experience faster speeds in more locations on their mobiles."

The company estimates that the deal will deliver between $1.6 billion and $1.8 billion of revenue to Telstra over the initial 10-year term.

"A material uplift"

TPG's CEO, Iñaki Berroeta, was pleased with the deal and expects it to significantly expand its mobile network footprint in regional Australia and enable growth of its customer base in regional and metropolitan areas.

He said: "It represents a material uplift in the capability of our network and will provide significant value for TPG Telecom shareholders over the medium and long term. We will be open for business in regional and rural Australia like never before, offering a 4G network that provides 98.8% population coverage and rapidly growing 5G coverage across the nation. The agreement demonstrates best-practice asset utilisation and a commitment to rationalising our operations to deliver a better customer experience, while increasing capital efficiency."

In response to the agreement, TPG will decommission the 725 mobile sites it currently operates within the coverage area. It notes that this will reduce environmental impact, energy consumption, operating costs, and future capex.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended TPG Telecom Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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