TPG Telecom Limited (TPG) Earnings Call Transcript & Summary

This is James Hall speaking from TPG Telecom. Welcome to the presentation of our results for the year ended 31st December 2021. I would like to acknowledge the traditional custodians of the lands from which we are all dialing in today, which, for me, are the Cammeraygal people of the Eora Nation here in North Sydney. I pay my respects to their elders past, present and emerging, and extend that respect to all aboriginal and Torres Strait Islander peoples on this call today. This is a prerecorded presentation, at the end of which will be live Q&A. [Operator Instructions] I'll now hand over to our CEO and Managing Director, Iñaki Berroeta.

Thank you, James, and good morning to everyone. Our 2021 results reflect a year in which we took strong steps towards delivering on our potential despite considerable market and industry challenges. Our EBITDA result reflects known COVID and NBN-related headwinds, but we operate with financial discipline against this backdrop. We delivered strong cash flow, results reflecting cost synergies, efficiencies in a spectrum investment and working capital and reduced borrowing costs. We have declared a final dividend today of $0.085 per share, up $0.01 compared with the 2020 final dividend. We are ahead of schedule, with merger synergies expecting to hit our target of $125 million to $150 million this year, which is 12 months earlier. We have started 2022 with positive momentum. Our competitive position has been strengthened by our recent investment in our 5G network, which we are accelerating further. And we now have an even stronger position to compete through the landmark regional network agreement with Telstra that we announced earlier this week. The strategic review of our passive tower infrastructure is now nearing completion, and there is significant value to unlock there and throughout the TPG asset portfolio. Having added 80,000 subscribers for our fixed wireless broadband service in 2021, we aim to achieve at least double that number in 2022. And we have positive momentum in mobile again, having added 33,000 mobile subscribers since November 2021. When I reflect on all we have delivered amid the challenges of the past 12 months and the strong foundation we are building as market conditions improve, I am very optimistic about what we can achieve as we operate under the simpler, better integrated structure. My next slide sets out 2021 financial performance in a little more detail. On a pro forma basis, assuming the merger had been in place for all of 2020. Revenue and EBITDA were all down 3%. This reflected the ongoing impact of COVID restrictions on customer numbers as well as intense promotional activity in mobile. In fixed, it reflects the impact of legacy DSL customers transitioning to the NBN, higher NBN wholesale costs and the introduction of the RBS levy. Our OpEx was 4% lower as a result of cost efficiencies delivered through our merger synergies program. Reported NPAT was down 11%, reflecting the EBITDA impact dropping to the bottom line. Free cash flow was very strong. This reflects working capital discipline, the nonrecurrence of prior year spectrum expenses and significant interest cost savings. The $0.085 final dividend takes total dividends declared to $0.165 per share, translating to 53% of adjusted NPAT. Now let's turn to mobile subscriber numbers where we have momentum again following the COVID-related reductions we experienced over the past 2 years. The chart on the left shows, how we were disproportionately impacted by the market contracting, arising from the shutting of Australia's borders. We experienced a 12% peak-to-trough impact compared with 4% for the product market, reflecting the strong brand position we have with international arrivals. The recovery we are beginning to see is, of course, unpredictable and may be bumpy. But the 33,000 net additions we have seen since the start of November 2021, as shown in the chart on the right, are very encouraging. This comes from early benefit of returning inbound international arrivals as well as big improvements in the domestic market. Now moving on to fixed, where we have very strong customer growth momentum. In our key growth area of fixed wireless, we added 61,000 customers in the second half of 2021, ending the year with 80,000 customers. We are on course to at least 160,000 fixed wireless subscribers by the end of 2022. This is a material near-term opportunity requiring limited incremental capital investment as we leverage existing mobile network and spectrum investments. I have said before that each year, we avoid $50 million of NBN costs for every 100,000 customers we add in fixed price. Today, that is translating to incremental cash margin per customer per month of between $15 and $30. And that is after modem costs and promotional discounts. As volumes set to 5G, and these promotional impacts phase out, we see this incremental margin growing, while still delivering a lower cost to the customer. Our on-net fixed-line services supplied over FTTB, HSC and VDSL also remain highly margin accretive. The functional separation we are pursuing of the wholesale and retail business will enable additional wholesale growth as we invest in G.Fast. upgrades. Only 2% of fixed customers remain on legacy DSL product today, and we stand to grow margin over time as we continue to migrate NBN customers and win new customers to our on-net solutions. NBN cost remains a headwind, but we are optimistic that [ we will see ] review of the special access undertaken will deliver a fair and more predictable pricing regime. Enterprise is another key growth area. In December, we refreshed our brand and go-to-market strategy for business customers and set a target to achieve revenue of $1 billion in 2025. That compares with about $700 million today, which is 70% of our Corporate Segment revenue. We have a strong momentum with this strategy in 2022 already under 4 key pillars of growth. The first one, growing core enterprise connectivity services, as we have done with recent customer wins with Qantas and NAB. Second one, winning greater share with small businesses in fixed and mobile to enhance cross-selling and digital sales channels. The third is expanding our capabilities in network managed services and security in areas such as SD-WAN. And the fourth, is enhanced IoT and private network solutions, an area that will accelerate with increased 5G update. Moving to cost now, where our merger synergies program is going strong. We realized $71 million of synergies in 2021. In OpEx, this comprised $33 million in streamlining our corporate structure and $24 million in technology and operations efficiencies. In cost of sales, we delivered $14 million of efficiencies, mostly from moving more of our services and access to our own mobile and fixed network. There is more to come in 2022 as we target delivery of our $125 million to $150 million target a year earlier than scheduled. This month, we commenced the next stage of simplification of our business to reduce complexity and deliver a more sustainable operating model. In technology and operations, there is considerable additional opportunity in the rationalization of systems, hardware and physical locations. And our focus will turn to streamlining our consumer brand and marketing strategy and cross-selling capabilities. Our initiatives in 2022 are designed to establish a sustainable cost base moving forward. Now turning to our network. The MOCN agreement with Telstra is a landmark deal for TPG and is highly complementary to our focus on investing in our core metro network. It will enable us to service all existing and new customers using Telstra's regional network across 3,700 sites, a fivefold increase on our own sites in that area and will extend our mobile network coverage to 98.8% of Australia's population. This is a major enhancement for all current Vodafone, TPG, iiNet, Lebara and felix customers and positions us strongly to grow. It unlocks our potential to serve urban fringe and city-based Australians who value nonmetro coverage in their choice of carrier, and positions us strongly as a provider to more than 4 million customers in the MOCN coverage zone. It enables us to avoid hundreds of millions of dollars of CapEx we would otherwise spend expanding and upgrading our own regional networks. We will also receive a spectrum payments from Telstra for the spectrum we will be licensed to them. This makes the agreement cash positive very quickly, relative to the alternative, and we will generate an enormous amount of value as we grow our customer numbers of this more efficient capital base. The accounting impact we expect to recognize in 2020, subject to the ACCC approval are noncash and reflect the decommissioning of sites and equipment we will no longer need. Greater capital efficiency in our regional network enables acceleration in our metro network, having upgraded more than 1,000 sites to 5G in 2021, we are targeting the same again in 2022, which should set us on a path to have the roll-out largely completed by 2025. While this means higher network CapEx in the short term, it is a smart capital deployment. The acceleration we get 5G to more places sooner, enabling full use of our spectrum assets, greater mobile customer growth in major cities and enabling our fixed wireless growth. This level of investment to optimize the usage of our spectrum is more than offset by the recent spectrum investment we were able to avoid because of the strong spectrum holdings we gained as a result of the merger. The potential monetization of our tower assets and the Telstra MOCN arrangement are part of a broader network strategy to reduce duplicative capital investment, direct capital investment to areas of differentiation and a smart sharing of active infrastructure. We are increasingly well-positioned as the focus of our industry continues to evolve toward increased asset utilization. A key driver of the VHA-TPG merger was the opportunity to deploy combined spectrum and network holdings more efficiently through the creation of a full-service telco. We then announced last August, a strategic review of the mobile tower and rooftop sites we own. That review is nearing completion now that we have announced original sharing arrangement with Telstra. The MOCN will reduce the total perimeter of the portfolio by about 115 sites to approximately 1,100, as most of the 725 sites we are decommissioning under our deal with Telstra are already operated by other tower companies. Demand from super funds and other infrastructure investors is robust, and we believe there will be a strong field of buyers for our tower portfolio if we choose to proceed with the sale. I believe we are now entering a period in which the industry will drive greater efficiency in capital deployment, which will be good for both customers and shareholders as the investment carriers undertake becomes more value added. I will now hand over to Grant.

Thanks, Iñaki. It is a pleasure to present my first TPG results. I'm just over 3 weeks into the role, and really excited about the opportunities available to the company. Here with me today is Sean Crowley, our Deputy CFO, who has been acting CFO over recent months. He will assist me with any detailed questions. Ought to thank Sean for his immense efforts in 2021 and for the support that he has provided to me over the past few weeks. My first slide presents [ a brief slump ] showing a revenue decline of 3% in 2020 to 2021. The biggest driver was the net loss of mobile subscribers, which accounts for $60 million in lower revenue in postpaid and $68 million in prepaid. Of this, about $40 million is directly attributable to COVID impacts driven by lockdowns and border closures. The remaining $76 million decline related to pricing. A large proportion of the decline in mobile ARPU occurred in the first half, and we saw ARPU stabilize towards the end of the year. Also, as we've outlined in our first half results, a large portion of the ARPU decline is due to interconnection charges, which is largely offset by lower cost of sales. Looking forward to 2022, we are encouraged by our momentum in subscriber growth and a reason to be confident that roaming revenue will recover with increased international travel. The fixed broadband revenue trended higher in line with our growing customer base. I will now turn to the performance of each segment. In terms of the presentation, we have increased emphasis on gross margin by segment, while continuing to show operating costs at the group level. OpEx is largely managed centrally, so we can set clear targets and control recurring costs. Details of EBITDA by segment remain in our financial statements, and we also provide a reconciliation in the supplementary slides. Looking at the margins. Consumer was down 6%, which compared to a 4% decline in revenue. This was largely due to continued migration of legacy ADSL customers to NBN services, higher CPC cost from the NBN and the introduction of the RBS levy. Accelerating growth in fixed wireless somewhat mitigated these margin pressures. Looking forward, we expect the margin impact of net migration to NBN to reverse in 2022 as more customers move from NBN to fixed wireless and from ADSL to the NBN. Corporate margins, meanwhile, were slightly improved year-over-year. EBITDA was impacted by a number of headwinds in 2021, many of them short term in nature. These are somewhat mitigated by OpEx savings. COVID-related events had a $30 million EBITDA drag in 2021 compared to 2020, even taking into account the nonrecurrence of about $28 million of costs in 2020, which related to supporting vulnerable customers. Revenue was impacted by COVID lockdowns and border closures, and NBN-related CVC costs were driven higher by increased data usage. Looking forward, we expect to the COVID impact on revenue and CVC costs to be lower. However, overall NBN wholesale pricing continues to be difficult to predict. In mobile, $111 million of the margin decline came from subscriber losses and ARPU declines, which were unrelated to COVID. As discussed, some of the ARPU loss was offset in cost of sales by lower interconnection costs. And pleasingly, ARPU stabilized towards the back end of 2021. In addition, we've see net subscriber numbers grow by approximately 33,000 over the past few months. Margins also continued to be negatively impacted by subscriber migration of ADSL to the NBN, which is partially offset by the NBN subscribers to our higher-margin fixed lines products. In 2022, the migration of legacy ADSL customers to NBN will be reduced as the last customer transitions occur or we'll also see greater benefit from continued uptake in fixed wireless. Indeed, we expect we will migrate more of the NBN, and we migrate to it for the first time. On synergies. The largest component was employment costs as we reduced head count by streamlining and rationalizing overlapping corporate areas, call centers and retail stores. The other category comprised mostly of increases in device margin and some one-off maintenance. Now turning to CapEx. The consolidation of TPG and Vodafone spectrum holdings is one of the key benefits of the merger. It meant that we could sit out December's low-band option without impacting the ability to [indiscernible] for our customers, avoiding a greater than $500 million cash outlay. This capital discipline allows us to focus our investment on key strategic initiatives. The avoidance of future CapEx in regional areas, following the agreement with Telstra announced this week, would have a similar effect, increasing our capacity to redirect capital into areas where we believe we have an opportunity to grow value. To that end, we have brought forward investment in the metro [ radio ] access network. Acceleration over the next few years of the 5G rollout, broadband upgrade and Huawei equipment change-out will deliver significant benefits much earlier and help drive increased subscriber and margin growth. We should start to see the rate of CapEx normalized through 2024 and 2025. When combined with Telstra's 5G rollout plan in the regional area, to which we will have access, TPG metro 5G upgrade will largely be complete. This will put us in a very robust position. Our strong operating cash flow profile, together with disciplined capital allocation, sets us up well to deleverage over time. Coming back to the potential financial impact of the regional transaction in Telstra. In cash terms, all other things being equal, the cost of this agreement will largely be offset by savings of no longer operating in our regional network nor the current roaming arrangement with Optus. These 2 components alone will save approximately $100 million per annum. Additionally, we will receive spectrum payments from Telstra. To put that in perspective, we compared to the cash cost of operating a local network of about $1 billion a year. The net impact of the regional agreement with Telstra will be immaterial in network cost terms. This is in exchange for a material increase in network capability and product offering, allowing TPG to drive profitable subscriber growth. We estimate breakeven on a cash basis required us to grow by an incremental 100,000 to 200,000 customers, an increase of about 2% or 3%. Any growth above that, we'll begin to deliver significant value for shareholders. Hence this agreement is strongly value accretive for TPG, while also significantly reducing the risk and operating and maintaining our broad network. The impact in P&L terms will be higher than cash given the network as a service nature of the agreement. Initially, all other things being equal, we estimate the agreement to impact EBITDA by about $40 million compared with today, with a lesser impact on net adds, due to lower depreciation and interest costs, after the one-off upfront onerous lease charge. Again, this is not including any value from executing our improved competitive position. From a capital allocation perspective, this agreement, together with our capital discipline and other areas, allows us to have a laser-like focus on deploying capital where we believe we can create the most [ in our view ]. To close out on dividends, the dividend declared represents 53% of adjusted NPAT, slightly higher than our [indiscernible] policy [indiscernible]. $0.085 of per share reflects a solid $0.5 progression from interim dividend, and it is $0.013 higher than the 2020 final payment. I will now hand back to Iñaki.

Thank you, Grant. I want to make some closing remarks by reflecting on some key trends and explaining how we are framing our strategy to respond. The pandemic has demonstrated growing demand for and reliance on connectivity services throughout the economy. This will only increase, as societies adopt a new ways of virtual working and the 5G investment and migration cycles picks up. The market is now recovering as the impacts of the COVID pandemic and impact such as the transition away from legacy fixed broadband services reduce. There is a vibrant and compelling market for NBN alternatives, and we are leading the way in fixed wireless and our other on-net services, and there are strong opportunities for us also in enterprise and in wholesale. Looking internally, we are reducing complexity and are focused this year on delivering a simpler operating model. Finally, we are entering a period of rationalization with great potential to unlock value through greater infrastructure sharing, asset utilization and monetization. With this backdrop of opportunity, we are talking about our strategy with 3 guiding principles. The first one is integrate and simplify. Create a lean company, integrating brands, technology, infrastructure, processes and people as one. The second is win smart, focusing growth investment with a clear infrastructure advantage, increased utilization opportunity where valuable market opportunity exists. And the third is maximize our potential, develop an efficient and scalable business model, creating a vibrant and dynamic competitor in the telco industry. Another thing I'm looking forward to this year is spending more time with investors to talk about our strategy and introduce our team. We recently streamlined my executive leadership team from 11 to 7. This group is now stable and ready to execute with a great balance of telco and broader industry experience. We intend to host deeper dive sessions for investors with key members of this group over the next coming months. Our sustainability strategy launched in 2021 will also be key to our success. Today, we have also released our 2021 sustainability report, highlighting the key achievements over the year. We are looking forward in 2022 to providing more details and targets to the market, including in respect to our carbon emissions reductions. My final slide sets out the achievements of 2021 and objectives for 2022 and beyond in the context of the 3 guiding principles of our strategy. Our achievements in 2021 included the delivery of the first stage of our synergies program and the beginning of streamlining our organizational model. We delivered great progress deploying fixed wireless broadband services across the network, relaunched our enterprise strategy, accelerate our 5G upgrade and kick off the strategic review of our passive tower infrastructure. In 2022, things will accelerate. And their integrate and simplify, we have brought forward our delivery target from $125 million to $150 million of annualized synergies as we commenced the program to fully transform our operating model and we expect to evolve our consumer brand and marketing strategy. Under win smart, we will leverage the returning momentum in mobile while targeting a doubling of subscriber numbers in fixed wireless at least, which will be strongly margin-accretive at the same time as NBN's headwinds will lessen. The delivery of functional separation will enable greater use from our own access networks and the execution of our enterprise strategy will also drive growth. Under maximize our potential investments in our network will continue at the same time as we unlock value in our network assets to enhance infrastructure sharing and potential asset monetization. Thank you for your time this morning, and we will now go to Q&A. In addition to myself and Grant, we are joined by Deputy CFO, Sean Crowley; Group Executive for Consumer, Kieren Cooney; and Group Executive for Corporate, Jonathan Rutherford; and our Group Executive Legal and External Affairs, Trent Czinner.

Thanks, Iñaki. This is Bruce speaking from TPG Investor Relations. [Operator Instructions] The first question is from Eric Choi from Barrenjoey.

I just had three. The first one, just on your chart on Slide 7 on the mobile subscribers. I assume that includes any uplift from the regional deal. So can I use that to infer up to half of your subscriber losses have been either international IDs? Or sort of are COVID-related? The second question, just on fixed wireless. I guess your guidance for subscriber suggests the rate slows from -- went to 1,500 a week. So what's the limiting factor? Is it supply of modems? Is it the coverage footprint? And then the last question on the regional deal. My best guess is your regional share is probably about 5% today. I'm just wondering how much higher this has been historically, say, pre-Voda sale? And how much you need to invest in things at the top front, lifted back to historic numbers?

Thank you very much, Eric, for your questions. So let me start with the first question. I'm going to give this one to Kieren. And then maybe I give a bit of a quick answer on the last two.

Thank you, Eric. On the mobile subs, the -- just so I understand the question correctly, was the impact of international orders closing on the overall net position. So it did impact us. And I think you have heard a number from what was in there. But it impacted us in a couple of different ways. It impacted us both from an inbound as we -- tourism and immigration was effectively stopped but also as visitors that were living in Australia left and that drove up churn and also lockdowns impacted our strong retail channel as well. So that was the good news. For those that -- as borders are now opening, we are feeling encouraged by the turnaround of those numbers, as we talked about from November through January.

Thanks, Kieren. On the second one, look, I think that there is -- like we anticipated and we talked, there are challenges with supply chain on some of the modems. And we expect that to be the case probably for the next year. The supply chain impact is probably affecting more the low end than the high end. So we don't see that on network equipment and things like that. On the modem side, we are cautious. We are managing that by really increasing our number of suppliers and working also on quite long-term arrangements in terms of supply. So I'm confident that we'll do well. But at the same time, it's something that we -- it's difficult to predict what the supply chain impact is going to be, and it's a market there was a worldwide impact. In terms of the regional -- in terms of our -- the reality is that Vodafone has never been a player in regional. We have always been mainly a metro player. And the arrangement that we have done with Telstra is a shift on the strategy, and that's twofold. One of them is, we want to enhance the regional coverage for metro customers that are -- when they choose their service, looking at us as a requirement. I think that this is a big benefit of this deal, but also there are a lot of places where we also want to provide our services with all of our products, not just mobile, that now we're going to be able to do that with a much larger network. So with this deal, we basically go from a grid of approximately 5,500 sites to a grid that is close to 9,000 sites. This is a massive, massive geographical increase on our footprint. And definitely, like I said before, the 2 main benefits, regional coverage for metropolitan customers, but also the opportunity to play in other market. And of course, all this -- just to clarify that did all the [ graph ] on Slide 7 is a pre-MOCN benefit.

Thanks, Eric. The next question is from Kane Hannan from Goldman Sachs.

Just three for me as well, please. Maybe just again on the network deal with Telstra, and Iñaki, your comments around the regional subs being able to target them a little bit more aggressively. Should we be thinking about marketing retail store investments that might come into your OpEx base before the sub growth comes through? And sort of is that captured in the $40 million EBITDA number, I think you spoke to? Secondly, just to mobile sub growth since November, that's 33,000. Is there any more color you can give on that sort of prepaid, postpaid, whether it grew? And how I think about the phasing in the fourth quarter versus January? And then just a CapEx step up, just interested in the timing of that investment now rather than maybe a bit earlier in the 5G cycle. And I suppose how I think about the normalization over time, is that back to the sort of low 800 level?

Thanks, Kane. I think I grab everything that you were asking, but you may have to help me. So let me start just very quickly. In terms of the marketing and distribution cost of regional. Like I said before, there are 2 opportunities in terms of market share growth here. One is we're going to be relevant to more people in metro. And then you also need to take into account that any ramp up of advertising or distribution is something that we would do cautiously. And also, you need to also take into account that we are shifting quite a bit of volumes on to channels that are not so much dependent on the physical location. So I think that from that perspective, we can probably leverage on the lower investment that we have done around digital advertising and distribution. I'm going to ask Kieren to give a bit more color on the 30,000 net adds in the last 3 months.

Thank you, Kane. Thank you, Iñaki. So just -- I think you asked for a little bit more breakdown of that 33,000. So that was up to January, and the good news is we've continued to see that through more recent weeks. Overall, we're looking like about 1/3 is in postpaid and 2/3 is in prepaid. We're benefiting both from domestic market but also international as international students started to arrive at the beginning of the year. That's ended up being about 1/4 of our postpaid sales, which happens as we look to the borders opening broader for the rest of the year.

Okay. Maybe if you don't mind repeating the last question on the CapEx?

Yes. Just interested, I suppose, what's driving that step-up now. Were you waiting for this deal with Telstra to finalize before you made these investment decisions? And then just, I suppose, the normalization in '24, '25. Like what is the normal CapEx bucket? Is that what you used to talk to in the 70 to 80 range?

Look, I think there are -- so there are 2 parts of the question. The first one is, as part of the merger, we had significant spectrum holdings that we were not using until we are able to refresh a big part of our network. So last year, we made a decision that it was wise to utilize in full our spectrum by accelerating the renewal of our infrastructure rather than going for acquiring more spectrum. So it's a much more economical option for us to advance some CapEx, be able to use the 700 and the 3.6 in full in more places rather than spend money in the spectrum. I mean we do have rich spectrum holdings, and that's one of the biggest assets that we have. So like I said, this is an acceleration of CapEx that is temporary, and it helps us to really do full use of that spectrum and not buy additional spectrum. I don't know, Grant, if you want to add?

And I think in terms of the normalization back, obviously, we've been in that 700, 800 premerger, I think that's where we said we would be. We've taken the opportunity to accelerate for all the benefits Iñaki has talked about. That will revert back to that sort of normal view. And indeed, with the regional deal, we should actually lower that ongoing CapEx burden. We're taking out about 15% of our sites. And so I suspect actually once we get through '24 and '25, the overall CapEx -- sustaining CapEx will be lower depending on what we do with towers as well.

Thanks, Kane. The next question is from Lucy Huang from Bank of America.

I've got three as well. So just in relation to mobile ARPU, and I think we've seen a stabilization in the postpaid of half-on-half. And just with the market dynamics currently with a bit more rationality, I just wonder if you can give us some color on how ARPUs are trending coming into January and February. And then just a second question. In relation to fixed wireless is the target to grow from 80,000 subs to 160,000 next year. Can you give us some examples as to where are these fixed wireless users? Like are they in the inner city? Or in the suburb? And kind of what is their usage at the moment? And are you seeing any impact to the mobile network? And then just thirdly with synergies. So you brought forward the target to FY '22. Just wondering if you see any further spike for more cost out beyond that.

Thank you very much. Look, I'm going to ask Kieren to give you an answer on the mobile ARPU and also on the fixed wireless, and then I'll ask Grant to explain a bit on the synergy program.

Thanks, Iñaki. Thank you, Lucy. On mobile ARPUs, as you point out, they stabilized in the second half of the year, and that was largely based off a change in our pricing approach. So what we -- one of the things we do, you might have noticed through the year is we removed an ongoing discount that was available that we've seen as being ineffective and as -- and that was being offered across multiple plans and allowed us to relook at how we are pricing things, allowing us to really offer greater value for slightly higher prices. So what you saw there was effectively a bit of a change in approach from rather than offering discounts for the same amount of allowance instead of greater allowance for the same figure. So with that as a strategy, that's what we would continue and can expect that ARPU to continue in that space. We think that the current settings for our ARPU is a good space for us. We can win in that area, and we think it is a good place for us in the market, but we're forever reviewing in terms of what our pricing strategy should look like. The question in terms of fixed wireless. So we're at fixed wireless users. Look, it's all -- it is still -- though we're hurt by the 80,000 connections that we pushed that we have now in the base. We -- they -- it's still very early days. So what we're seeing is it's probably too early to give an overall indication. But what we're seeing is that it is great value, and it's a great service. So people are -- when we are approaching them, a large amount of our fixed wireless spaces come from migrating existing broadband customers onto fixed wireless, and we found a high level of success in that. The second part of the question from memory was is it having any impacts on our network. We've been very careful to make sure that we are not putting any pressure on the mobile network in releasing only amount of available market to fixed wireless that we are confident won't have an impact on anywhere else in the mobile for any other mobile customers.

And I think on synergies, just -- I mean, firstly, it's been really pleasing that the team has been able to bring forward the synergies and do them much more aggressively and quicker. The integration program has largely been that. It's been overlapping corporate roles, retail and the network sides. That's going to get the full year benefit to next year and continue to accelerate. Where the real benefits might come from now is in the focus on simplification of the business, that one of the benefits of being simple is there might not be merger benefits, but they do start to find other benefits in terms of how to you simplify costs, I think, can do. Our main objective is to really -- build a really strong foundation in terms of our cost base to have it as a competitive advantage so we continue to offer value to our customers. We think we'll get there through the course of this year and continue to really look to manage that in a stable way over the coming years.

Thanks, Lucy. The next question is from Tom Beadle from UBS.

I've got three as well, please. The first one is probably a bit of a follow-up from Lucy's on postpaid mobile ARPU. I know you mentioned last half that ARPU for customers signing on to new end market plans at the time was coming in about $3 higher than your underlying ARPU at the time. Now obviously, that number has come in this half flat, half-on-half. So just wondering what's driven that outcome. Is that sort of -- is there any sort of mix shift we need to be aware of or any sort of moving parts? And I guess to ask Lucy's question in a different way as well, new customers now coming on at a higher ARPU than your current $36 for the last half. Second, on the Telstra agreement. Again, relating to mobile pricing -- I mean obviously, this agreement gives you a number of options. You could, for example, hold your pricing and take share in regional areas, just being the lowest-cost provider and by offering more coverage to your metro customers at no cost. Or you could obviously increase your pricing as well, given the increase in coverage. So how are you thinking about this? And just thirdly on costs. I know we've spoken about synergies, but can we -- could you just give us a guide on underlying cost movements in FY '22? In particular, I know there's potential savings from that finish at the migration of customers to the NBN. How much cost out is there as the rate of migrations slow? Obviously, the remaining migrations might be a bit more difficult than average. And like how much, for example, TEBA is in your cost base now? And are there any other costs worth calling out there?

Thank you very much, Tom. Look, I think I'm going to ask Kieren to elaborate on the ARPU and then we'll talk a little bit about the other 2 questions afterwards. Kieren?

Thanks, Iñaki. Thank you, Tom. So the question, if I break it down, was that midyear, what we talked about was the higher acquisition ARPU or the ARPU of acquired customers. And the question was, is that basically maintaining? And also, why would you not see that in the overall ARPU? Part of it has just got -- the major answer to that is that it's just the -- we have a very large customer base. So although we have been acquiring at that upper level, it's yet to wash through just the volume of our customer base. But we have been able to maintain that same kind of level of increased ARPU.

Your second question is a good question, but not something that I would comment on, what is going to be our pricing strategy next year. I think that, that is something that we keep to ourselves. And on the cost side, probably I'm going to ask Grant to just elaborate a bit.

Yes. And I think, again, I'm just going to reiterate that I think the potential cost for next year and beyond is going to come from simplification, and that is something a program we're working through the integration as we've talked about accelerating the target through the year and continuing. In terms of the migrations to NBN and also, as I called out, it's going to be the first year that we actually migrate more of our customers from the NBN to higher-margin product than we do to it. So that will come through in the margin line, not as to the OpEx line. Now that's really -- so that would certainly help underpin some of the margin in consumer to reverse some of the trends that we saw this year where we migrated more people to the NBN and despite migrating those 80,000 to fixed wireless. That will be a good trend, I think, and will continue in the coming years.

Thanks, Tom. Next question is from Darren Leung from Macquarie.

Just 2 quick ones for me, please. Both of them relate to fixed wireless, an extension on some of the earlier questions. Of your 160 target for FY '22, can you give us a feel for -- if you plan for this to come from your existing NBN customers? Or will you be targeting other space, please? And then the second one is just on the $15 to $30 incremental margin per month. Can you give us any color as to what's the variability is here, just because it's quite a big range, please.

Yes. Look, I'll take that one directly. Thanks for the question, Darren. The split is usually about 1/3 new, 2/3 migrations. That's really what we are seeing in the current model that we are doing. So that's the fixed wireless. 2/3 of the customers will be NBN and then we do acquire new customers into our brands through fixed wireless as the 1/3. In terms of the ARPU, there are 2 things that you need to take into account in terms of the ARPU of fixed wireless. One is the last year was predominantly a 4G product. Now we are moving more into a 5G product. The other thing is that the weight of the promotional time on the pricing also will wash out over time. And the other thing is that we are also including the modem cost in those margins, so you can -- that's why it is below [indiscernible] and -- but the tendency will be that, that incremental margin will grow.

Is it higher in 5G than 4G?

Yes, absolutely, it is higher in 5G.

Thanks, Darren. The next question is from Entcho Raykovski from Credit Suisse.

I've got 3 questions, and I might ask them one by one. I guess firstly, just looking at that step-up in CapEx into FY '22. I'm just interested in when you think about the return on that step-up, do you need to see significant growth in subs in order to generate a sufficient return? What -- I guess, how are you thinking about it? And what are you budgeting from a returns perspective? Or is this -- or more broadly, is this not about returns, but more about protecting the network relative to competitors?

Look, a lot of the CapEx that we spend, like any other telco is actually to maintain the technology requirements of the infrastructure. The way that we look at this CapEx is that this is more of an acceleration rather than an incremental. And also, it helps us to avoid the purchase of spectrum that, I mean, you saw how the auction ended up at the end of last year. So it's a much better use of our money in that sense. This also allows us to put our spectrum to work. And by saying that, it's more capacity for fixed wireless, but also a faster investment of 5G, which, like Kieren was saying, is able to bring us a $30 ARPU increment as we see today.

Okay. I understand. And then second one also related to CapEx. Do you expect that Telstra agreement provider goes ahead to provide a CapEx benefit from FY '23? I guess just listening to your comments, it doesn't sound like there's expected to be any step-down from the FY '22 level.

Yes, I can answer that. So look, I think the Telstra agreement is two elements to that. We've obviously looked at it from a total cost of operation point of view. And while we've called out just to explain the sort of $40 million EBITDA potential impact, all things being equal, that's largely done because we're moving CapEx savings into a sort of Network-as-a-Service OpEx view. So that's going to increase sort of EBITDA by -- or decreased EBITDA by about $40 million. The impact on net adds about half of that because we're obviously savings on lease and interest. And then it actually is about neutral in the first year where we actually are saving a whole bunch of CapEx from when we signed the deal, so CapEx will actually be lower than it currently is on the regional stuff. We don't need to spend any of distribution costs that will go through in the first couple of years as we decommission, but that's not huge. So ongoing, yes, we are replacing CapEx with some OpEx is relatively neutral. It's immaterial. It may grow. How it grows in the future really depends on customers we get. So obviously, the more cost they get added to that is largely because we're adding customers and getting the margin on that.

Okay. Great. I guess what I was specifically getting to, so if we take that deal and some of that CapEx benefit, there should be a benefit immediately in '23? Or is that essentially replaced by the accelerated -- but has it been replaced by the accelerated investment over the next couple of years?

That will be the choice that we make. Yes, I think we will continue to accelerate 5G for the benefits that Iñaki pointed out. So that's -- it's not a necessity, but at their current plans, we're hoping to accelerate that. In sort of 2024 and into 2025, we'll start to go back to a more normal CapEx spend, which will be lower than it has been in the past.

Got it. And then, I mean, Iñaki, you've obviously spoken about not participating in the low-band spectrum options. Obviously, you just spoke about it then. If you -- I guess if you're too successful in terms of sub additions, particularly post this Telstra deal, could that -- is there a chance that leaves you short in terms of spectrum holdings? Or have you done your modeling, which suggests that you've got so much spare capacity, that's not something you need to be worried about?

Yes. We -- of course, we do. We have done quite a bit of analysis on that. So there are 2 things. One is if you look at our current metropolitan spectrum holdings, they are very rich and especially for the numbers of customers, so I think that is really a question of putting all this spectrum to work. But the capacity that we have is very good. And that covers the metropolitan area. In terms of out-of-metro, the deal that we have signed with Telstra not only gives Telstra access to our spectrum, but it also gives us access to Telstra's spectrum. So from that perspective, ample capacity as well for future growth.

Thanks, Entcho. The next question is from Fraser Mcleish from MST Marquee.

Great. Just another one on fixed wireless. Obviously, you've got a bit of experience with that now over the last 6 months or so. Just what's your kind of latest thinking on how many customers you can potentially get on to fixed wireless without having to invest significantly more or coming up against some capacity constraints that would be helpful just for us to frame the opportunity. And then second, just on how you're thinking maybe about greenfield development opportunities. Obviously, there's some very valuable opportunity there, which you guys haven't historically addressed. I know you're doing that functional separation, which looks -- if that gets through, it looks like that may enable you to address that market is -- just if you can tell us if that's part of your thinking there?

Thank you very much, Fraser. Look, on fixed wireless, I think that I have already mentioned a number of times. So next year, we're going to double the opportunity that we have. We estimate on around 20% of our fixed base, but then again, this is something that is more of how we see the fixed wireless in the long term. For next year, we're targeting to double our base of fixed wireless. And then on the second question, I'm going to ask Jonathan Rutherford to answer that one.

Thanks, Fraser. So with respect to greenfield development, the first thing you mentioned is the functional separation, which is going through at the moment, and we expect that to conclude in May. That gives us the option then, once it's hopefully successfully passed up, we're able to do those developments. But also that we're able to expand the existing network and roll out higher speed using some technology known as G.Fast. So we see a really strong opportunity to monetize that network that we'll look selectively case-by-case on greenfield development if they make sense in a good rational use of our CapEx. But I do see a strong commercial opportunity from speed upgrades to those network assets.

Thanks, Fraser. The next question is from Roger Samuel from Jefferies.

I've got three questions. First one, just on enterprise. If I look at your disclosure for the Corporate division, it looks like when a combined fixed and -- done in IP, the revenue went backwards by about 4% year-on-year. And I'm just wondering what was driving that. Was it the pricing decline? Or have you lost some customers? But on the other hand, the margin also went up for the Corporate Segment, as you've been migrating more customers or signing up more customers to your on-net network. Second question is on mobile subs is up 33,000 since November. Just wondering if that's driven primarily by lower churn. Or have you got more and more new customers signing up to your network? And the third one is just on fixed wireless access. You're targeting to double the subscriber base for fixed wireless, but is there any risk that the government may introduce something like an RBS levy on fixed wireless as well?

Thank you very much, Roger. Look, for the first one, I'm going to let Jonathan first on -- in terms of the revenue, this is mainly an H1 impact, and we did explain at the time that we did have quite a bit of legacy TC2, TC3 products that had an impact second half. We have done much better and enterprise is now in a different trajectory. But the reason for that is mainly legacy copper products that are phasing out. And I'm going to ask Jonathan to continue with the next.

Yes. Thanks, Iñaki. And with respect to margin, there's 2 big drivers. Thank you for the question, Roger. You're right that we've been more successful shifting some of that business on-net and move to our Fast Fibre products away from these legacy products that Iñaki just mentioned. And the second thing is we've also seen a very strong uptake of our mobile products as well, in particular, our bulk messaging product, which is a more margin-rich product than some of these other legacy products that would have sat in the base. So that ultimately accounting to the uptake in margin.

Kieren, maybe you can answer the second question?

Yes. Thank you. Thank you, Roger. So the question, I think, was what of the 33,000, up to January, what was the churn was at acquisition, it was both? So we saw a marked increase in acquisition over that period and sustained increase in acquisition, as mentioned before, both in pre and post. And the -- and there was also an overall reduction in churn as well, which was positive. And just what we've seen is we've seen an improvement in postpaid churn year-on-year, and we've seen an improvement from ports position last year compared to the year previously.

Yes. Look, on the third question, Roger, I don't think that's going to happen. It's very difficult. And I think that probably there are other solutions for the NBN that taxing the rest of the alternatives, so probably a difficult thing to implement an RBS on something like mobile, so fixed or wireless, it would be very problematic.

Thanks, Roger. The next question is from Brian Han from Morningstar.

Looking at the $125 million to $150 million synergy for this year, what do you think are the key risks that we should be aware of in the synergies? Because I presume simplification is harder at the start, it will become simpler later on. And my second question is, as consumers and mobile industry transition to 5G, have you guys noticed any change in consumer behavior in terms of greater willingness to pay a premium for coverage, speed and data in general? Or do you think value end is still holding up pretty well?

Thank you very much, Brian. I'm going to ask Kieren to answer on the 5G. On the synergy side, we really don't -- I mean, the synergies that we are working on are all under our control. Last year, we did a good job in delivering and we continue the program. So yes, I think that this is something where we are targeting those savings, and we have a good level of control over them.

Thank you, Iñaki. Thank you, Brian. On the question of 5G, is it a change in consumer behavior in terms of what they're willing to pay, the -- it's still early days, although we're really excited in the progress we've made in our own 5G network rollout post the deal, it's just been talked about. It is still relatively new, and the uses for 5G are still emerging. So I think what we'll see is any major behavioral change occur as the applications for 5G and as the usage increases on those at this stage, nothing material.

Thanks, Brian. The next question is from Richard Chirgwin from IT News.

With the reduction in NBN wholesale purchases, does that give you -- firstly, does that give you more confidence that whatever happens with things like the SAU and NBN CVC pricing infrastructures, those will affect you less than otherwise would have been? And secondly, could somebody just go over the G.Fast depolyment possibilities yet?

Thank you very much, Richard. I don't know if I understood your first question correctly. Can you please repeat?

Does the move -- does gross in your -- on TPG-network-only customer base make you more resilient against changes in how NBN operates in terms of things like its SAU and CVC pricing?

Yes. Thank you for the question. Yes, absolutely, yes. So we still think that the SAU needs to be looked at and reformed as soon as possible. It is a very old model, and it's not going to help NBN get more efficient. But nevertheless, the fact that we can come on our own infrastructure protects us more than others around any future changes in that. And on the second question, I'm going to ask Jonathan to reply.

Yes. Thanks, Richard. So in terms of G.Fast at the moment, you would have seen and the fact that we've got approximately 135,000 subscribers that are on the networks that are in scope for that upgrade. So that will give you a feel for, I guess, how much the opportunity could be in terms of delivering speed upgrade and hopefully an ARPU-accretive play. Clearly, we won't talk about pricing or anything like that until we announce it to the -- all of the RSPs at once.

Thanks, Richard. The next question is from [ Graham Lynch ] from [ Comte ].

My question is regarding fixed wireless. You've talked about the benefits of -- in terms of margins of moving on-nets to fixed wireless from NBN. But it seems to me that the upgrade target is quite modest, 160,000. Is there any reason why you're not going harder on that?

Thank you, Graham, for your question. What do you mean by harder?

Like faster. Like try and aim for a higher amount.

Well, I think that in the second half, we did 60,000 customers to fixed wireless, which is a massive move. And I think that it's a matter of doing it in a way that it's a customer choice. We need to contact the customer. We need to transition the customer. And I think that we do as we -- as in the numbers are pretty good in that sense if we can get more modems, and there is even more demand from customers definitely will go faster. But we think that we have had a good run rate.

Thanks, Graham. The last question is from Zoe Samios from the morning -- The Sydney Morning Herald.

Apologies if you've already answered this. I've gone a little late. I just wanted to ask you about the Telstra deal that was announced on Monday. They've spoken publicly about the dollar value that they're getting from that deal by sharing their towers. I just wondered if there's anything you can say around the financial benefit to you of them using your spectrum.

Yes. Thanks, Zoe. Look, I mean, I'm not going to talk about the Telstra numbers. That is actually their numbers. I can tell you about our numbers. So our numbers are, and I think that Grant explained, we look at our current spend on that geography to serve roughly 750 sites and for a similar dollar value we are multiplying that by 5. I think that the numbers that Telstra estimates also assume good increment in market share on our side, which I think is also good. But this deal has 2 ways of looking at it. One of them is the massive improvement that we put on our regional coverage and the opportunity that, that brings to grow market share. There is the other side of the deal that is also very interesting for us, which is to get a lot more for similar amount of money in terms of access to infrastructure in regional Australia.

Thanks, Zoe. There is no more questions on the line. I'll hand back to Iñaki for some closing remarks.

Well, thank you very much, everyone, for your time. I know that it's been a long week for all of you, maybe more than a long week, a couple of long weeks. So thank you for listening to us today. It's been a great year. We have a lot in our plate. We merged. We had COVID. We started with no 5G, we ended up with a very strong 5G network on our metro areas. And on top of that, I think that we ended the -- with a really good solution for a way to get our brands to much more customers in a very economical way. So a lot of building blocks, a lot of activity, a lot of work, a lot of sensible capital expense. And I am also quite happy about the exit rate that we have from 2021 with strong customer performance on the back of many of the things that we've been working on during the year. So once again, thank you very much. I hope to talk to all of you soon. And yes, I think 2022 looks like a good year for us. Thank you.