Telstra and TPG Telecom could bring more SIM plans to the bush
Australia’s telco market has been uncertain since Telstra and TPG Telecom (Vodafone) announced their agreementto share mobile networks for ten years. Optus has clarified its opposition, arguing that the deal would strengthen Telstra and weaken Optus, thereby reducing competitive pressure.
The Australian Competition and Consumer Commission has also opposed the network sharing agreement, claiming that it will reduce competition and increase the price of SIM plans.
Telstra and TPG Telecom, as expected, argue that none of the opposing arguments is true. Both telcos have blasted Optus’ campaign against the deal as “scaremongering”, clarifying that the arrangement is not a merger between Telstra and Vodafone – they agree to share networks.
While the announcement has ruffled feathers in the industry, the deal has to gain approval from the ACCC before becoming a reality. And contrary to what Optus and the ACCC argue, if the contract is eventually allowed to happen, the network sharing agreement could, in fact, boost competition in regional Australia. Read on to find out how.
Details about Telstra and TPG Telecom’s network sharing proposal
TPG Telecom and Telstra will share their mobile networks if the deal is approved. The bulk of the sharing will occur in regional and urban fringe areas, which will introduce TPG Telecom as a new player in such underserved regions.
And while the proposed deal might be confused as a merger, both telcos will remain independent. The extent to which they partner begins and ends in sharing their mobile networks.
Here’s a quick look at the details of the network sharing proposal between Telstra and TPG Telecom:
- Telstra will grant TPG Telecom access to 3,700 of its 5G and 4G mobile networks in regional and urban fringe areas. This move could boost TPG Telecom’s coverage to 98.8 per cent, up from 96 per cent, which resulted in TPG Telecom becoming the second largest telco in Australia, ahead of Optus.
- Telstra is targeting AU$1.6 billion to AU$1.8 billion in revenue received from TPG Telecom throughout the 10-year network sharing deal. TPG Telecom will also grant Telstra access to some of its 4G and 5G networks and spectrum for improved coverage and bandwidth.
Why Optus and the ACCC oppose the network sharing agreement
If Telstra shares its mobile network with TPG Telecom, the latter’s coverage will experience a significant boost that could land it second place in Australia’s telco market, ahead of Optus. This, alone, is enough motivation for Optus to oppose the deal.
Further, the 3,700 mobile sites Telstra plans to share are in regional and urban-fringe areas, which TPG Telecom has found challenging over the years. Because rural areas are sparsely populated, telcos are not motivated to commit the necessary capital to develop their mobile network infrastructures. Thus, sharing mobile networks is an attractive business strategy to reduce costs while penetrating such markets. This will carve out a piece of the regional Australia pie for TPG Telecom, making it an increased threat to Optus.
Optus has launched an extensive social media campaign condemning the network sharing deal as one-sided for Telstra. The telco claims the proposal if allowed to proceed, “will strengthen Telstra, weaken Optus and the competitive pressure that Optus imposes on Telstra.” Optus claims the agreement could see Telstra get as much as 75% of the available spectrum, making it “unassailable”, especially regarding 5G.
The ACCC’s argument is mainly that the network sharing deal would reduce competition, which could have an unpleasant effect on SIM plan prices. ACCC boss Rodd Simms stated, “Vodafone, of course, is paying money to Telstra, so it has to recover that. We really need to understand the impact on prices because at the moment, you’ve got a bit of a competitive dynamic. We’re concerned about whether that dynamic will disappear.”
How the network sharing deal could boost competition and bring choice to regional Australia
Australians in urban areas have several telcos to choose their SIM plans. This vast choice has led to competitive pricing and discounts for SIM plans. While the Big 3 (Telstra, Optus, and Vodafone) offer a range of plans, MVNOs also resell their networks at even lower prices, giving Australians more choice.
However, this isn’t the case in regional and rural parts of the country. One or two telcos dominate such regions, and their services are not great. Such monopolies lead to less competition in those areas and fewer deals for SIM plans.
While the ACCC argues that the network sharing proposal between Telstra and TPG Telecom could reduce competition and increase SIM plan prices, we can’t help but see a possibly different outcome. Increasing the number of telcos in such areas by adding TPG Telecom to the mix increases the number of choices for Australians in the bush. With more choice comes more competition, which in turn could lead to a reduction in SIM plan prices.
Even though the proposal calls for sharing mobile networks, it doesn’t mean both telcos are merging to become one. They remain independent, free to run any promos and price reductions they deem fit. And to differentiate in the telco market, pricing is critical.
Other countries like Canada, New Zealand, and some European countries have already taken the network-sharing approach. The result has been more choice and competition due to the reduced financial burden to enter sparsely populated regions, which has led to competitive prices.
Victoria has a similar approach – the state allocated $300 million to fast-track mobile coverage improvement across 54 locations. They are doing this by co-investing across government and mobile operators to join hands and resources to improve coverage. NSW is considering a similar network sharing and co-investing approach.
If done correctly, network sharing is a great idea to bring more mobile networks to regional and rural Australia. While some telcos already have the mobile infrastructure in such areas, others don’t. Sharing that infrastructure while being compensated is an excellent way to invite more telcos to the region, increase competition and choice, and reduce prices or introduce value-driven offers.
Final words
There are different points of view on whether the rollout of (most of) Telstra’s coverage to TPG’s customers will improve or become worse, the levels of competition around phone plans in Australia. The ACCC, for example, have real concerns. Perhaps unsurprisingly, Optus has also voiced dissatisfaction with the proposed agreement between 2 of the three biggest Australian phone companies.
As someone without skin in the game but who has previously worked for a couple of the brands discussed here, this appears to be a straightforward, clear step towards more choice and lower prices for phone users in the bush. The devil, as always, is in the detail, but I think the ACCC and Optus are wrong in this regard.