New mobile network bid risky

TPG’S plan to build Australia’s fourth mobile network is risky but could ultimately pay off by reducing the impact of the national broadband network on its business, an analyst says.

Morningstar senior equity analyst Brian Han said the telecommunication group’s earnings growth over the past year was a “mirage in the rearview mirror”, with the rollout of the NBN set to hit margins this financial year.

TPG’s $1.9 billion mobile network, announced in April, focuses on increasing control of infrastructure in Australia and Singapore. It targets a highly competitive market dominated by big names, Telstra, Optus and Vodafone.

The iiNet owner yesterday announced it was cutting its dividend to redirect cash to the rollout of its mobile services, taking its total payout for the year to 10c a share compared with 14.5c a year ago.

It reported it had beaten its earnings forecast, but warned it would face mounting costs in the year ahead as customers shifted to the NBN.

Shares in TPG rose more than 5 per cent, but plunged to a fresh three-and-a-half year low yesterday. Mr Han has not downgraded Morningstar’s valuation on TPG shares of $6 each, but said its financial position needs close monitoring and could have its lenders worried in the year ahead.

While the rollout of TPG’s mobile network would be a financial stress for the company in the medium term, it would ease competition stemming from the NBN.

“Over the long term, we see the strategic sense of TPG having control of more infrastructure, especially something as valuable as mobile, a channel that is increasingly a default port of communications for consumers,” he said.