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A Deeper Look at Australia’s TPG Telecom, A Contender to be Singapore’s Fourth Telco

Three companies are aiming to be Singapore’s fourth telco.

TPG Telecom, an Australian-based internet service provider, is one of the trio vying for a spot. Singapore’s telecommunications industry is currently dominated by three major players, namely Singapore Telecommunications Limited (SGX: Z74), StarHub Ltd (SGX: CC3) and M1 Ltd (SGX: B2F).

Can TPG Telecom break-through the hold of the incumbents? We take a closer look.

Background

TPG Telecom started its life as Total Peripherals Group in 1986.

Following a reverse takeover by SP Telemedia in 2008, the combined entity was renamed to TPG Telecom. The Australian firm is helmed by Malaysian-born David Teoh. 

A series of acquisitions followed the merger with the latest major acquisition being iiNet, another Australian internet service provider. The acquisition was a significant one, adding almost 1 million broadband subscribers to TPG Telecom’s own 853,000 broadband subscribers.

In total, TPG Telecom had 1.87 million broadband subscribers in Australia at the end of the financial year ended 31 July 2016 (FY2016).

Interestingly, TPG Telecom’s new broadband subscriber count puts it ahead of Optus, the Australian subsidiary of Singapore’s own Singtel. At the end of June 2016, Optus had around 1.1 million broadband subscribers.

A pretty penny

Entry into Singapore’s mobile market will not come cheap.

The entry will be facilitated through a spectrum auction which is expected to take place in early October. The starting bid will be S$35 million for 60 MHz of spectrum out of the 900 MHz and 2.3 GHz bands. This is about half of what the incumbent telcos might pay, thus lowering the bill for TPG Telecom to enter Singapore’s mobile market. According to its latest earnings report, TPG Telecom has lodged an Expression of Interest to bid for up to 75Mhz of spectrum.

To be sure, TPG Telecom might have the financial muscle to pull this off.

For FY2016, the company recorded A$2.4 billion in sales and free cash flow of A$318 million. At the end of July, TPG Telecom also reported a debt balance of A$1.35 billion and a net debt to EBITDA (earnings before interest, taxes, depreciation and amortisation) ratio of 1.8 times.

If it is successful, TPG Telecom will fund its expansion through existing debt facilities and cash generated from its Australian operations.

Foolish musings

Just as Singtel crossed the pond to enter into the Australian market through Optus in 2001, TPG Telecom could be looking to return the favour by entering the Singapore market.

It’s not a given that TPG Telecom will emerge the winner, but Singapore’s mobile consumers could have a new mobile choice as early as April 2017 .

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.