A generational shift to mobile and broadband communication has been facilitated by fast-evolving technology and clever engineering. Telecommunications has evolved so quickly that everyday products and services are genuinely indispensable for most customers – individual or corporate.

The companies that have recognised the changes have harvested some exceptional results and TPG Telecom is among them.

Strong leadership

Executive Chairman David Teoh, who owns a significant chunk of the company, has charted a course that combines two crucial elements. First, TPG has offered the market broadband products that represent excellent value for money and a genuine alternative to the major carriers. That has enabled TPG to attract and keep large numbers of customers, especially at the retail level.

Secondly, TPG has actively acquired and built a substantial amount of its own network thereby reducing its reliance on access to major carrier network capacity. The important consequence of this approach has been to effectively lower TPG’s cost of data carriage and therefore support its operating margins.

Back in March 2010, TPG paid $373 million for PIPE Networks, which brought on board 1,300km of fibre-optic cable to enhance the company’s own capacity. That was about the same time that iiNet was forking out $40 million to buy internet service provider Netspace, adding 70,000 more customers to its 520,000 base at the time.

It marked an interesting point in time when the strategies of both companies appeared to diverge, with iiNet fixated on customer acquisition while TPG was prepared to grow its own network capacity as well as find new customers.

That was all before the NBN became a reality from the back of a table napkin.

Fast forward to today and while the NBN has been a predictable disaster so far, businesses such as TPG look set to capitalise on its creation. Once the NBN is modified (under renegotiation with Telstra) to a mainly fibre-to-the-node network, businesses such as TPG can continue to grow subscriber bases with the NBN in the background as just a wholesale network provider.

Fast mover

But TPG has taken another cunning step forward by announcing that it will begin to supply NBN-like services in metropolitan areas across Australia’s major cities with trials for the $70 per month service beginning at the end of this year. Offering speeds of up to 100 Mbps and some nice little add-ons such as international calling, TPG will be targeting a part of the market that is being neglected by the timetable and political posturing of the NBN rollout.

While rural and urban areas of Australia are prepared to wait and wait and wait for the blue cables to arrive in their neighbourhood sometime over the next decade (yawn), inner city dwellers are impatiently demanding quicker action for first world telecommunications services. TPG has recognised this opportunity and has already sent fibre to about 1,600 buildings across Australian cities.

That may not sound like much but it captures a market of about 500,000 apartments, many of whom are probably prime candidates to take up a fast broadband connection with a competitive mobile phone service packaged up under TPG’s brand.

That’s the theory at least but it’s a fair bet that TPG will have a jolly good crack at signing up an impressive number of new customers without having to acquire another ISP.

The numbers game

In the last financial year, TPG added a net 76,000 new broadband customers nudging its total to 671,000 subscribers. It also added an impressive 105,000 new mobile subscribers taking its base to 360,000.

TPG’s bundled offerings have also grown its home phone subscriber total to 351,000. That’s an interesting reversal of the now customary news from Telstra that it loses fixed line customers every year. The home phone customer base is of course the add-on part of the on-net bundled plan that uses broadband as the carrot and a home phone as the ‘giveaway’.

The same cannot be said of TPG’s mobile offerings, as it showed this year it is serious about this segment of the market. By acquiring 10MHz of spectrum for $13.5 million in the government’s auction, TPG has secured enough capacity to continue to grow its mobile business, again without the need to pay large interconnection fees to major carriers.

With capital expenditure requirements calling on just $59 million, TPG’s free cash flow is a considerable $174 million, which allowed it to increase its dividend this year to 7.5 c per share fully franked. But this is a growth company and while shareholders always enjoy an income, TPG is looking financially well set for its next phase of growth.