TPG Telecom Upgraded: Optus’s Pain Becomes Vodafone’s Gain

The Australian telecommunications sector is rarely the centre of excitement for investors, but recent events have thrust TPG Telecom (ASX: TPG) back into the spotlight. The company’s fortunes have turned sharply following Morgans’ decision to upgrade its rating to “Accumulate”, signalling growing confidence in TPG’s recovery story and valuation potential. This upgrade comes at a time when major competitor Optus is struggling to repair reputational damage caused by repeated outages and data security issues.
The shift in sentiment could not have come at a more critical time. With the ASX 200 Communication Services Index lagging behind the broader market and telco shares trading at significant discounts to tech peers, investors are beginning to re-examine the sector’s fundamentals. For TPG, the combination of strong cost control, network improvements, and the unexpected benefit of Optus’s customer churn is shaping a more favourable outlook for FY2025 and beyond.

What are the Best ASX stocks to invest in right now?

Check our buy/sell tips

Optus’s Troubles Create Opportunity

Optus’s challenges intensified after its nationwide network outage on 8 November 2023, which disconnected over 10 million Australians for nearly 12 hours, affecting hospitals, transport, and emergency services. The Australian Communications and Media Authority (ACMA) later confirmed the scale of disruption and launched a compliance review into Optus’s emergency management procedures. The incident triggered widespread backlash and increased scrutiny from both consumers and regulators.
The reputational damage has had real commercial consequences. Roy Morgan’s customer satisfaction data indicated a significant decline in Optus’s satisfaction ranking following the 2023 outage, with customer trust eroding quickly. Many customers sought alternatives, and Vodafone, now part of TPG Telecom, became one of the biggest beneficiaries.
Industry analyses and independent reports suggest that Vodafone recorded a modest increase in mobile subscribers in 2024, reversing several years of flat or declining growth. Optus’s corporate clients, frustrated by recurring network disruptions, began migrating to Vodafone’s enterprise plans, contributing to improved revenue stability in TPG’s mobile segment.
This customer shift appears more structural than temporary. Brand loyalty in the telecommunications market tends to be sticky, and once customers leave due to trust issues, they are unlikely to return quickly. The implications are significant: even modest market share gains for Vodafone can translate into hundreds of millions of dollars in incremental annual revenue for TPG.

Morgan’s Sees Undervalued Growth Potential

The Morgans upgrade is anchored on the premise that TPG’s earnings profile is stronger than the market currently recognises. In its latest research note, the broker highlighted improving earnings momentum, cost discipline, and stable cash flow generation as reasons to build exposure to the stock.
In FY2024, TPG reported underlying EBITDA of approximately A$1.93 billion, up about 5% year-on-year, according to its official ASX filing (February 2025). The uplift reflects the success of post-merger synergies between TPG and Vodafone, which have streamlined operations and reduced duplication across the business. The company’s net profit after tax was around A$390 million, supported by lower financing costs and reduced capital expenditure.
Morgans also emphasised the company’s strong dividend outlook, projecting a fully franked dividend yield of around 4.2%, underpinned by steady free cash flow and a declining debt ratio. Net leverage stood at approximately 2.1× EBITDA, and management aims to reduce it further over the medium term. This deleveraging creates room for potential capital returns or selective reinvestment in network expansion. The valuation argument is compelling. TPG trades at a meaningful discount to Telstra and the broader ASX tech cohort, yet maintains similar exposure to long-term themes such as 5G adoption, data growth, and digital infrastructure expansion.

Telco Shares Find New Relevance

After several years of underperformance, ASX telco shares are regaining investor attention. The S&P/ASX 200 Communication Services Index is up around 8% year-to-date, compared to 24% for ASX tech stocks, according to Refinitiv data. This underperformance has left valuations at multi-year lows, presenting opportunities for investors seeking yield with defensive characteristics.
Telcos have historically been viewed as utility-style businesses, prized for steady dividends but limited growth. However, the evolution of data consumption patterns, cloud computing, and enterprise connectivity has blurred the line between telecommunications and technology. This shift is prompting investors to reconsider companies like TPG as part of the “digital infrastructure” investment theme, similar to global peers such as Verizon and BT Group.
For TPG, this transformation is tangible. Mobile services account for roughly 40% of group EBITDA, up from around 36% three years earlier, highlighting the segment’s rising profitability. Fixed broadband continues to deliver consistent margins, while enterprise solutions are emerging as a growth engine. As a result, TPG is positioned as both a defensive income stock and a growth play on Australia’s expanding 5G economy.

5G Rollout: Laying the Foundation for Growth

The rollout of 5G networks represents one of the most capital-intensive but strategically vital undertakings for the Australian telecommunications industry. As of mid-2025, the Australian Mobile Telecommunications Association (AMTA) estimates that 5G coverage reaches more than 80% of the population, with Vodafone expanding its presence through tower-sharing agreements and regional spectrum acquisitions. TPG has committed up to A$1.8 billion for network modernisation between FY2023 and FY2026, aiming to close the coverage gap with Telstra in metropolitan areas. The company’s access to low- and mid-band spectrum gives it a competitive advantage in high-density zones, where 5G data usage is highest.
This investment is expected to yield tangible revenue growth over the next three years as consumers upgrade their devices and businesses adopt 5G-enabled technologies. Data consumption per user in Australia continues to rise by approximately 20–25% annually, based on estimates from industry sources, driven by streaming, remote work, and IoT integration. For TPG, this surge in usage directly supports higher average revenue per user (ARPU) and more stable customer retention.
5G also opens new monetisation pathways, particularly in enterprise solutions. Fixed wireless access, private networks, and edge computing are becoming key revenue streams for telcos globally, and TPG is actively pursuing partnerships in these segments.

Vodafone’s Resurgence: A Decade in the Making

Vodafone’s resurgence within TPG’s portfolio has been years in the making. The brand’s reputation suffered in the early 2010s due to network congestion and customer service problems, but the 2020 merger between TPG and Vodafone Hutchison Australia transformed its scale and competitiveness.
The merger enabled significant cost efficiencies and provided access to a combined subscriber base of over 5.5 million mobile customers. This consolidation also allowed TPG to leverage Vodafone’s network assets while integrating its broadband and fibre services, creating a more balanced revenue mix. Recent performance data suggests the turnaround is gaining traction. Independent industry analyses showed Vodafone capturing a larger share of new mobile connections through 2024, narrowing the gap with Optus. This marked Vodafone’s strongest market position in nearly a decade.
Enterprise clients are also beginning to migrate to Vodafone’s corporate plans, drawn by competitive pricing and improved reliability. As these long-term contracts mature, the contribution to recurring EBITDA is expected to grow steadily. The timing of this recovery coincides with Optus’s decline, magnifying the impact of every market share gain.

Regulatory Environment and Competitive Balance

The Australian telecommunications market remains highly regulated, with the Australian Competition and Consumer Commission (ACCC) playing a central role in maintaining competition and network fairness. The regulator’s 2023 decision to block TPG’s proposed regional network-sharing arrangement with Telstra was initially seen as a setback, limiting cost efficiencies.
However, the outcome has encouraged TPG to pursue independent network expansion, strengthening its infrastructure ownership and long-term competitiveness. The company’s ongoing regional 5G rollout and fixed broadband expansion are positioning it as a genuine third force alongside Telstra and Optus. On the broadband front, NBN Co.’s pricing reforms and wholesale cost adjustments are improving margin stability for retail providers. TPG’s broadband ARPU increased modestly in FY2024 after several years of pressure, with management focusing on higher-value customers and improved bundling strategies.
The main challenge for the industry remains pricing competition. The race to offer bundled packages that include mobile, broadband, and entertainment services could compress margins. TPG’s management has prioritised profitability over volume, maintaining pricing discipline even at the expense of headline subscriber growth. This approach has begun to yield results, as reflected in margin expansion across multiple business units.

Financial Strength and Capital Discipline

TPG’s balance sheet is one of the more stable in the sector. Net debt stood at approximately A$4.06 billion as of FY2024, down from A$4.27 billion in FY2023. Relative to cash flow generation, the company’s leverage metrics remain comfortably within investment-grade thresholds. Strong free cash flow conversion, driven by lower capital expenditure following the 5G rollout peak, supports sustainable dividends and debt repayment.
The company’s dividend policy remains attractive for income-focused investors. The FY2024 dividend totalled 18 cents per share, comprising a fully franked interim dividend of 9 cents and an unfranked final dividend of 9 cents, representing a yield of approximately 4.4% based on the February 2025 share price of around A$4.05. Analysts expect annual dividend growth of 6–8% through FY2026, backed by steady earnings momentum and ongoing deleveraging.
TPG’s capital allocation framework has been deliberately conservative. Management continues to prioritise debt reduction and network investment over share buybacks, a strategy that aligns with the company’s long-term growth ambitions. This discipline enhances earnings visibility and supports investor confidence in sustainable payouts.

Valuation and Outlook

Relative to peers, TPG’s valuation remains undemanding. The stock trades on an EV/EBITDA multiple of roughly 7.5× FY2025 estimates, compared to 8.5×–9× for Telstra and approximately 11× for international peers such as Singapore Telecommunications. This discount reflects historical scepticism rather than current fundamentals. Consensus forecasts compiled by Bloomberg and Refinitiv project mid-single-digit EBITDA growth over the next two years, alongside improving margins and lower capex intensity. Free cash flow yield is estimated at 6%, one of the strongest in the ASX telecoms space. The consensus price target range of A$5.25–A$5.50, set by major brokers including Morgans, UBS, and Macquarie, indicates potential upside of roughly 10–15% from current levels. If the company sustains its mobile momentum and maintains dividend stability, that target could prove conservative. The near-term focus for investors will be execution: ensuring 5G rollout targets are met, maintaining competitive pricing discipline, and preserving brand momentum as Vodafone continues to capitalise on Optus’s difficulties.

Risks to Consider

While the outlook appears positive, several risks remain. Competitive pressure continues to be intense, with Telstra using its scale to offer bundled discounts that can erode margins across the sector. Regulatory uncertainty persists around future spectrum auctions and infrastructure sharing, which could influence capital expenditure requirements. Macroeconomic factors, including household cost pressures and slower discretionary spending, could limit mobile upgrade cycles and dampen near-term ARPU growth. Technological disruption from emerging communication platforms also poses a long-term challenge.
Despite these risks, TPG’s diversified operations, solid balance sheet, and consistent dividend record provide a cushion against short-term volatility.

Investor Takeaway

TPG Telecom’s story in 2025 reflects a broader transformation within the Australian telco landscape. Years of consolidation, capital investment, and strategic repositioning are finally starting to deliver measurable results. The timing of this recovery coincides perfectly with Optus’s operational struggles, positioning Vodafone to capture a meaningful portion of the displaced market share.
For investors seeking exposure to stable cash flows, dividend income, and moderate capital growth, TPG presents a compelling case. The company’s valuation discount, improving fundamentals, and re-rating potential make it one of the more interesting names in the ASX telco and tech universe.
As 5G adoption accelerates and competition reshapes, TPG’s ability to convert network investment into sustained earnings growth will determine whether this upgrade marks the start of a longer-term revaluation cycle.

FAQs

• Why did Morgan upgrade TPG Telecom?

  Morgans upgraded TPG to Accumulate on valuation grounds, citing stable earnings growth, improved cost efficiencies, and strong free cash flow. The broker believes the company is well-positioned to benefit from Optus’s customer losses.

• How has Vodafone gained from Optus’s issues?

  Vodafone recorded measurable subscriber growth in 2024 following the Optus outage, although Optus also reported prepaid subscriber gains via Amaysim, indicating mixed churn dynamics.

• What role does 5G play in TPG’s growth outlook?

  TPG’s A$1.8 billion network investment plan aims to match Telstra’s coverage in metropolitan areas by 2026. Rising data consumption and enterprise demand are expected to drive revenue expansion.

• What is TPG’s dividend outlook?

  TPG offers a dividend yield of approximately 4.4%, based on its FY2024 payout of 18 cents per share — split between a fully franked interim dividend and an unfranked final dividend. Analysts project annual dividend growth of 6–8%, supported by lower capex and improving free cash flow.

• Are telco shares considered ASX tech stocks?

  While formally categorised under Communication Services, many analysts view companies like TPG as part of the broader ASX tech ecosystem due to their digital infrastructure and 5G exposure.