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Digital infrastructure provider Vocus is significantly expanding its presence in the Australian telecommunications sector after securing a $5.25 billion deal to acquire a significant part of TPG Telecom’s (ASX: TPG) fibre network and its fixed business, including high-speed broadband operator Vision Network.
Vocus, which is owned by Macquarie Infrastructure and Real Assets and Aware Super, is poised to acquire TPG Telecom’s entire fibre network and its Enterprise, Government and Wholesale (EGW) fixed business in a deal that will provide the listed telco group with a cash injection of up to $4.75 billion.
The latest agreement follows the abandonment by TPG last year of a $6.3 billion sale, with a leaseback arrangement, of its non-fibre assets to Vocus as the arrangement at the time was cited by TPG as being overly complex.
TPG, Australia’s third-largest telco, says that following the sale announced today the company will retain its mobile radio network infrastructure, its consumer and EGW mobile business, and its consumer and small-office/home-office fixed retail business, including fixed wireless.
As part of the deal, Vocus will provide fixed network services back to TPG for a fee of $130 million a year.
For Vocus, the move will bolster its existing fibre network which spans 25,000km, connecting Australian capital cities, regional areas and some of the country's most remote regions.
TPG Telecom CEO Iñaki Berroeta says the sale of the assets follows a strategic review of the company’s fibre network infrastructure assets.
“The transaction reflects a smaller asset perimeter compared with the original discussions with Vocus in 2023, resulting in a simpler operating model than was envisaged in the original discussions,” says Berroeta.
“The deal unlocks the value of our fixed infrastructure assets while strengthening our financial position and creating a more focused and streamlined business with significant optionality for the optimisation of our capital structure.”
Berroeta also describes the sale as “a great outcome” for Australia’s large customers for fixed telecommunications services.
“The transaction will create a challenger of scale in the enterprise connectivity sector with strength in international, inter-capital, regional and metropolitan connectivity,” he says.
“It will also extend Vocus’ premium connectivity and collaboration offerings to TPG Telecom’s Enterprise, Government and Wholesale fixed customers.
“We look forward to a long-term partnership with Vocus that will support TPG Telecom’s ambition to be Australia’s best telco.”
The sale will lead to about 560 TPG Telecom staff moving to Vocus once the deal is finalised in the second half of 2025, with the transaction still subject to regulatory approvals.
“We are committed to working as efficiently as possible with Vocus and regulators to bring the transaction to completion and providing the smoothest possible transition for our Enterprise, Government and Wholesale fixed customers,” says Berroeta.
TPG Telecom plans to use the proceeds of the sale for capital management and business investment initiatives, details of which have yet to be finalised.
Under the terms of the deal, TPG is entering a Transmission and Wholesale Fibre Access Agreement (TAWFA) with Vocus where Vocus provides network services to TPG for $130 million per annum. The initial agreement is for a term of 15 years with two 10- year options to extend the arrangement.
TPG says the TAWFA has been designed “to ensure TPG maintains owner economics of the fibre network, meaning pricing is non-volumetric and increased only in relation to indexed and capped inflation and network expansion requiring the deployment of new physical infrastructure”.
TPG notes that the sale of the assets will not impact its current FY24 guidance to deliver EBITDA of between $1.95 billion and $2.025 billion, excluding material one-offs and cash capital expenditure costs.
But using its financial year ending 31 December 2023 as a base, the company says the sale will lead to a $429 million cut in in EBITDA to $1.494 billion and a $334 million decrease in operating free cash flow.
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