5G spectrum win a much-needed boost for TPG, but still an uphill battle for the telco

LAST week's award of 5G spectrum was a sorely needed win for newcomer telco TPG Telecom - though it is still an uphill battle for it to gain ground on the Singapore incumbents.

TPG and its Australia-listed parent Tuas Ltd have just disclosed that the telco was provisionally awarded 2 paired lots of 2.1 GHz spectrum for S$31 million, with a 15-year licence.

The latest 5G auction results will likely be a game-changer for TPG, which lost out in last year's beauty contest for 3.5 GHz spectrum. At the time, it clinched only millimetre-wave (mmWave) spectrum, which can be used for localised networks and hotspots, but not island-wide coverage.

TPG thus fell further behind both mainboard-listed market leader Singtel, as well as a tie-up between StarHub and M1, which won 3.5 GHz rights on top of mmWave spectrum.

With the earlier spectrum in hand, incumbents Singtel, StarHub and M1 have all already rolled out early standalone 5G mobile services, and are guiding for an expected premium to average revenues per user (ARPUs).

TPG, on the other hand, has so far been limited to mmWave coverage and trial non-standalone 5G service that relies on its older 4G spectrum.

Given its need to catch up with the incumbents' progress, the 5G spectrum award can only be good news for TPG, which aims to deliver "good-quality, excellent-value services" to grow subscriber count in FY2022.

Yet, even with 2.1 GHz spectrum rights in hand, TPG is still on the back foot in the Singapore market.

Singtel and StarHub-M1 were provisionally awarded 5 lots of 2.1GHz spectrum each, compared with TPG's 2 lots, although they could use some of this to offer 3G services instead. That's in addition to the 3.5GHz spectrum that Singtel and StarHub-M1 already hold, but TPG does not have.

Even before the auction was held, Citi analyst Arthur Pineda warned in July that TPG "will likely find itself so far short of Singtel and M1-StarHub allocations" for mid-band 5G spectrum, even were it to win the maximum 5 lots - which it eventually did not.

More crucially, the Infocomm Media Authority (IMDA) requires TPG to deploy a new 5G network under the same conditions as the incumbents - that is, with standalone coverage of at least half the island within 2 years, and full nationwide coverage within 5 years from Jan 1, 2022.

But, unless it can catch up rapidly, that timeframe puts TPG's 5G network rollout two years behind the other telcos', since Singtel and the StarHub-M1 vehicle must achieve 50 per cent coverage by end-2022, and full coverage by end-2025.

Pineda also expects the IMDA's islandwide coverage requirement to be a challenge for TPG, given the reach of 2.1 GHz spectrum - especially compared with the 3.5 GHz range, which global industry lobby GSMA has noted forms the backbone of the "majority of commercial 5G networks".

TPG - which has projected about S$40 million in capex for FY2022 - "will need to spend far more versus peers on network density, especially with far less spectrum", Pineda wrote.

'No business case'

Meanwhile, analyst Sachin Mittal of DBS has long maintained in reports that "TPG does not have a business case in Singapore" without what he deemed "a future-proof 5G licence".

He also previously told The Business Times that the limited amount of spectrum up for grabs in the 2.1GHz exercise was not enough for a viable greenfield standalone 5G network.

The prospect of a relatively slower standalone 5G network rollout - as well as the expected costs of building a 5G network, especially so soon after TPG started on its 4G infrastructure in 2017 - will probably exacerbate the earnings pressures facing Singapore's newest mobile network operator.

TPG parent company Tuas, which was incorporated in March 2020, most recently reported a net loss of S$32.6 million for the 12 months to Jul 31, 2021, on revenue of S$34.3 million - although, granted, the TPG Singapore operating unit still posted positive earnings before interest, taxes, depreciation, and amortisation (Ebitda) of S$0.9 million in the same period.

It has already been tough going of late across Singapore's entire mobile market, as incumbents' challenged ARPUs have proven in recent years.

Moody's Investors Services said in a recent report on the Asia-Pacific telecom sector that Singapore has seen "intense competition" and, despite "early signs of consolidation in 2021", ARPU growth is expected to be limited in the next 12 to 18 months.

Now, despite Singtel and mainboard-listed StarHub indicating early ARPU uplift from 5G services value-add, the situation may backslide once TPG throws its hat into the 5G ring.

Tuas said on Nov 29 that TPG will "move quickly to commence rolling out 5G equipment", with "very competitively priced services" expected to begin from the first half of 2022.

That line about pricing raises the spectre of 5G prolonging Singapore's mobile-market price war, especially as TPG has shown it has the stomach for much lower ARPUs than its peers.

Still - despite some analysts' pessimistic conviction that TPG may bow out of Singapore - the fresh 5G award all but guarantees that any departure won't happen anytime soon, if at all.

The IMDA - by letting TPG into the Singapore 4G market and extending lifelines through the mmWave and 2.1 GHz 5G awards - clearly remains committed to a vibrant and competitive landscape with multiple players, even if TPG missed out on 3.5 GHz.

And, with none of the mobile network operators having yet completed the full rollout of standalone 5G, only time will tell how sustainable the four telcos' market strategies can be.

Tuas shares hit an all-time high of A$1.98 on Wednesday (Dec 1), up by A$0.25 or 14.5 per cent on the day before.