TPG strikes A$1.6 billion active network-sharing deal with rival Optus

The 11-year, A$1.59 billion ($1.04 billion) arrangement will more than double TPG's geographic coverage to 1 million square kilometres, enabling it to reach 98.4% of the population.

Under the Multi-Operator Core Network (MOCN) deal, Optus will give TPG access to its regional RAN infrastructure, increasing the number of sites in TPG's footprint to 2,444 from 755. Optus has pledged to fast-track its 5G rollout in regional Australia, and plans to upgrade 1,500 of these sites by 2028, and reach the full 2,444 by the end of 2030.

Optus has also agreed to licence some of TPG's spectrum to enhance the capacity of the shared network. The MOCN is expected to be operational from early 2025.

Once up and running, TPG Telecom's retail operation and its wholesale customers – which includes Vodafone, iiNet, Lebara and Felix – will get access to Optus' 4G and 5G regional network on an equivalent basis to Optus.

Financially speaking, the deal is a win for Optus.

TPG will pay its counterpart A$1.59 billion ($1.04 billion) over the course of the partnership, consisting of a fixed fee of A$900 million, plus another approximately A$690 million that will contribute to the 5G upgrade programme. This will be offset by Optus paying to licence TPG's spectrum for the princely sum of A$420 million, resulting in net payments to Optus of A$1.17 billion.

That's a lot of money, but it's still cheaper than TPG building out its own regional network. For fiscal 2024, TPG expects capex to fall to A$1.02 billion from A$1.05 billion, while for each of the next two years, it forecasts capex of A$950 million, down from an earlier forecast of A$1 billion. Doubling geographic coverage while reducing capex will be music to the bean-counters' ears.

The deal is subject to regulatory approval by the Australian Competition and Consumer Commission (ACCC). This is the same ACCC that blocked a similar arrangement between TPG and Telstra in late 2022.

That deal was thwarted on grounds that it would entrench incumbent Telstra's position as the biggest player with the largest share of regional customers. TPG's deal with Optus doesn't carry the same baggage, and therefore stands a better chance of approval.

Meanwhile, the financial windfall will do little to alleviate the pressure on Optus.

Its parent company Singtel has warned that the group will incur non-cash impairment charges totalling S$3.1 billion ($2.3 billion) for the second half of fiscal 2024, stemming primarily from a S$2 billion impairment on the goodwill of Optus. The impairment takes into account the network sharing deal with TPG.

In a statement, Singtel said the adjustment reflects a range of factors including "weaker prospects in the enterprise market, increased cost of capital and the softer macroeconomic outlook in Australia."

Due to the impairment, Singtel said it expects to record a net loss for the second half of fiscal 2024, and lower profit for the full year.

Singtel has repeatedly denied rumours it is looking to sell up to 20% of Optus. Recent reports claimed it was in talks with Canada's Brookfield, which ultimately balked at the asking price of between $1.95 billion and $2.09 billion for the stake.

Reaching a deal would have shored up Singtel's finances, taking the sting out of the impairment, but now it looks like the operator and its shareholders will have to take the hit.