No Surprises with TPG's Result, But All 'i's are on the Future with iiNet

TPG Telecom, or TPG, reported a strong fiscal 2015 result, with net profit after tax, or NPAT, of AUD 224 million in line with our AUD 221 million forecast. However, management's outlook is guarded, understandably so, considering that the newly merged TPG/iiNet entity has only been in existence for the past few weeks. Despite management's caution, we see several avenues for potential synergies, primarily moving iiNet customers onto TPG's backhaul infrastructure to increase utilisation. TPG will retain the various brands previously held by iiNet and will maintain call centres to ensure that iiNet's high customer service standards are upheld. We agree with management's strategy to maintain the quality of the iiNet brand and resist the temptation to save marketing and call centre dollars through merging two brands. Merging brands will likely usher increased customer churn among existing iiNet customers and we believe this stems from the differing propositions between the two brands, with TPG the price leader and iiNet associated with a 'premium' service, as evidenced by a high net promoter score.