TPG embarks on major business transformation

After reporting a profit loss, telco giant TPG is planning a new strategy to alleviate pressure and remain competitive. Paul Budde reports.

WHEN TPG – Australia’s third-largest telecommunications company – released its half-yearly results, it became clear why the company had been keen to strike a deal with Telstra regarding infrastructure sharing.

The company reported a 71 per cent decrease in profits, down to $48 million, in comparison to the $167 million profit from the previous year. It is evident that the company is under pressure and for that reason, it has embarked on a transformation process.

A spokesperson for TPG, however, informed IA that last year’s figure included a one-off tax benefit associated with the sale of its mobile towers.

When the deal with Telstra was blocked by the regulator, TPG immediately launched plans to sell its fibre infrastructure and its enterprise business to Vocus. While TPG and Vodafone have always been consumer-focused organisations, enterprise businesses in general deliver higher margins. So, despite the $6.3 billion that Vocus offered for TPG's enterprise business and its fibre optic network, the company will, if the deal goes through, have a much smaller revenue base.

Vocus makes bid for TPG's infrastructure assets

A bid has been made for the non-mobile network assets of TPG, a deal that would benefit not only the buyer but TPG itself.

It will be interesting to see if it can compensate for this with growth in the consumer business. This is simultaneously the most contested part of the telecoms business, with Telstra and Optus being their main competitors here. About a week earlier, Telstra had made the opposite decision and chose not to sell its Infraco business, wanting to hold on to it in a rapidly changing market that will increasingly rely on good infrastructure. Consider here the enormous extra capacity required for AI-based services.

In addition to this, the industry faces problems with NBN Co. The wholesale prices and conditions are such that the retail service providers (RSPs) are under pressure. TPG saw a decline of 43,000 in its total fixed customer base, which now stands at 2.18 million.

As is the case with Telstra and Optus, the more profitable parts of its businesses are mobile and fixed wireless. Here, it is not reliant on a monopolistic wholesaler. In the half-year data, the company listed 39,000 new mobile customers, bringing the total to 5.32 million mobile subscribers.

Collaboration between telco giants would be a huge boon for industry

Collaboration and infrastructure sharing are essential to improving coverage and competition in the telecommunications industry.

TPG is also diligently pursuing its countrywide 5G expansion strategy, successfully enhancing over 2,500 mobile sites with this cutting-edge technology. This initiative included the transformation of more than half of its urban sites, totalling around 5,000 locations situated in densely inhabited regions, representing 80 per cent of the populace. The final phase of upgrades for the company's urban sites is scheduled to be finalised by the end of 2026.

In the transformation plan it announced, it aims to consolidate its products, services, and various I.T. and admin platforms to save costs. The company operates seven different brands: TPG, Vodafone, AAPT, Lebara, Felix, Internode and iiNet. The result of this is that within all these brands, it has around 600 different product plans and aims to bring this down to 100.

This is not unique in the industry and is a key reason why telecom companies have a much higher cost base than, for example, digital giants like Google, Facebook, Amazon and so on. Telstra has been struggling with such complexities for decades and a few years ago, finally embarked on a similar simplification exercise known as its T22 strategy.

However, such transformation processes are costly in operational expenses and will take years to complete. This implies turbulent times ahead for the company, which expects to start seeing the financial benefits of its transformation strategy from 2027 onwards.

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Paul Budde is an Independent Australia columnist and managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.