TPG says that following a review it has reduced the value of spectrum licences its holds by $92 million and will write-down $76 million in capital expenditure associated with the now-halted roll out a mobile network.
TPG announced in January that it was dumping its plan to roll out a mobile network. The telco blamed the government’s decision to block the use of Huawei equipment in 5G networks. TPG said the Huawei ban meant that there would be no straightforward path to upgrade its small cell based 4G network to the new wireless standard.
TPG is currently engaged in a merger process with Vodafone Hutchison Australia. Its announcement that it would discontinue its cellular network rollout came on the heels of the Australian Competition and Consumer Commission stating it was concerned that a merger might end any possibility of Australia getting a fourth mobile network operator.
“Our preliminary view is that TPG is currently on track to become the fourth mobile network operator in Australia, and as such it’s likely to be an aggressive competitor,” ACCC chair Rod Sims said in late 2018.
The ACCC is still considering the merger.
As part of the preparations for a merger, TPG and Vodafone formed a joint venture that was the second biggest spender in a government auction of key 5G spectrum. The joint venture spent $263 million on 131 lots of 3.6GHz spectrum, eclipsed only by Telstra which spent $386 million. (TPG also has spectrum in the 700MHz, 2.5GHz and 1800MHz bands.)
TPG said today that it had spectrum licences that have not to-date been amortised in its accounts.
“In accordance with the Group’s accounting policies, amortisation of these licences was to commence when the associated mobile network assets were installed and ready for their intended use,” a statement from TPG released to the ASX said.
“Having ceased its mobile network rollout, the Group now has no business plan or strategy for using its spectrum licences on a standalone basis and, accordingly, the carrying value of these licences is required to be reassessed,” the statement added.
If the merger with VHA goes ahead, the spectrum is expected to be “complementary” to the mobile operator’s network, TPG said.
“However, as the merger remains subject to regulatory and shareholder approval and is, therefore, not certain to proceed, the spectrum’s expected use by and value to the merged entity may not be taken into account in determining the current value of the spectrum to the Group,” TPG said.
As a result, TPG reduced the value of its licences by $92 million “primarily reflecting the fact that, as the licences have finite lives, their value necessarily diminishes over time”.
Similarly, although the already installed mobile network infrastructure could be leveraged by a merged telco, TPG said it had been obliged to write down $76 million in capex incurred so far in its rollout.
The company will announce results for its first half next month.