The reason Telco's are on the nose at the moment is NBN and competition.
Telstra, the lumbering giant that needs to slash costs and grow into new areas.
Optus... Brainless management.... Fixed Lines/Broadband .... Where are they at? and mobiles their innovation is slashing prices. Their profits in Australia have been smashed.
Vodafone... When will they make a profit in Australia.
If Vodafone cant make a profit in Australia with good management.. How hard will it be for TPG?
Personally I feel TPG got ahead of itself from a price perspective.
TPG have had a honeymoon period.
That is about to end..
1. They need to merge all of their little companies that they have purchased, and put them into one big computer system. If they dont the cost of maintaining these systems will blowout as they age.
One of the drivers for Simon Hackett selling Internode was that it was too small..
In many ways TPG is still operating as separate companies and has not reached the full potential by merging their back of house systems.
If you think Telstra bills are a nightmare, TPG's problems are immense.... Vocus took the plunge and spent big moving to one system.. Look what happened there.
TPG will need to bite the bullet at some stage and it wont be easy.
Better Profitability at the end of the rainbow.... But expect a lot of pain getting there.
2. NBN...
This is costing them a lot more than Telstra Wholesale..
As more customers move to the NBN. Maintaining the same levels of profitability will be an increasing challenge.
3. TPG Mobile
Spectrum is the lifeblood of the mobile network..
TPG have so little..
I am far from convinced that they know what they are doing in the mobile space.
Trying to build a mobile network on the smell of an oily rag doesn't work for me..
It could be an expensive money pit.
Because they have so little spectrum the cost of a TPG Tower when measured as $/MB or $/Mbps is going to be way higher than the opposition. So a company that has based its business plan on cheap unlimited data, for them to have the highest cost per megabyte per tower is a problem..
Say it costs $1M to build a tower.. Telstra has 150MHz of Spectrum. The tower is capable of at least 1.5GBps. TPG will still need to spend $1M but will only have 200 Mbps of bandwidth available due to their small spectrum holdings. and only 100 Mbps is capable of being used any distance from the tower.
Vodafone Telstra and Optus all have around 5-7 times as much Spectrum in the 700, 850, and 900 MHz Bands which is needed for coverage.
5G wont be a saviour.. That's going to need an awful lot more towers, and costs are going to be huge.
Data growth on mobile networks is growing at 60% per year.
TPG has done an awesome job of getting itself to where it is...
I see some challenging times ahead, which I believe is impacting the share price...
Fair Value right now... Maybe...... Could be a very long time to get back to its record high too.
They will continue to grow subscriber numbers I am sure.. Maintaining profit levels while executing their aggressive growth strategy I think will challenge them. This I believe is why their share price has fallen and remains flat
TPM Price at posting:
$5.16 Sentiment: Hold Disclosure: Not Held
