TPG’s failed 5G network: Why Australia dodged a bullet

By Justin Ware. Published at Jan 30, 2019, in Ctrl Alt Del

Australian telco TPG (ASX:TPM) has cancelled the roll out of its planned 5G network.

In an announcement released to the ASX on Tuesday, TPG executive chairman David Teoh pointed to the Australian government's ban on Huawei equipment as the primary factor behind the decision.

“A key reason for the selection of the vendor and the design of TPG’s network was that there was a simple upgrade path to 5G, using Huawei equipment,” the announcement stated.

“In light of the Government’s announcement in late August 2018 that it would prohibit the use of Huawei equipment in 5G networks, that upgrade path has now been blocked.”

TPG had been installing Huawei equipment since April 2017.

The news is a bitter pill to swallow for tech enthusiasts (like myself) who can't wait to get their hands on 5G.

If you're interested to know more about 5G I provided an overview of its capabilities recently here.

TPG had invested some $100 million into the network to date, with a further $30 million committed to the roll out of the network. 900 of the 1,500 network sites had been completely or partially completed.

Ouch.

Why Huawei got the boot

TPG's axed network seems like a huge waste, but the government had good reason to oust the Chinese company.

The August 2018 ruling saw Australia join the US, UK, Canada and New Zealand as countries to ban the ongoing installation of Huawei equipment in developing 5G networks.

The ban was the result of widespread belief that the company had been spying on behalf of the Chinese government. If if the arrest of Meng Wanzhou is anything to go by, that concern appears to be well founded.

Meng Wanzhou, the director of Huawei’s Australian subsidiary between October 2005 and August 2011, headed up the company’s corporate governance and oversaw the early foundational efforts in Australia’s NBN roll-out.

Wanzhou is since alleged to have been a key player in criminal activity for four of those years (which included a plot to defraud international banks).

She also happens to be the daughter of Huawei’s founder, Ren Zhengfei.

What the market said

While losing a new mobile network that was so close to completion is a cruel blow, allowing Huawei to become a key block in Australia's 5G future could have been a national security disaster.

The market seems to agree.

The news of one less competitor led to Telstra (ASX:TLS) finishing the day as the best performed stock on the ASX 200, closing at a three month plus high of $3.19 (up more than 7.7%).

Perhaps surprisingly, TPG also fared well.

While the company dipped to $6.60 just before 11am on Tuesday, investors likely realised that TPG had slashed its future expenditure significantly, while potentially clearing up any concerns the ACCC had about its merger with Vodafone.

As a result, they recovered and closed up 3% to $7.15.

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