The Australian Competition Tribunal's refusal to greenlight TPG Telecom's (TPG) regional mobile network-sharing deal with Telstra (TLS) surprised investors, judging by the stock price fall.

It continues the philosophical opposition of the competition regulator to telecom infrastructure sharing, despite its economic and capital efficiency benefits.

The regional idea of Telstra utilising TPG's excess mobile spectrum to improve capacity, in return for granting TPG access to its mobile network assets to improve TPG's regional presence, appears to be just too "convenient" for the regulator.

The fact it involves industry gorilla Telstra, a longtime nemesis of the Australian Competition and Consumer Commission since deregulation in 1997, is a clear point of agitation.

However, the decision has no impact on our AUD 7.40 fair value estimate on narrow-moat-rated TPG.

Our current forecasts do not incorporate any benefit from the deal, whether in higher operating earnings or lower capital expenditures. And despite TPG and narrow-moat-rated Telstra's desire to go on with the fight, be it via a judicial review of the decision or lobbying for government review of policy, we believe market optimism for a regional mobile network-sharing deal has completely evaporated.

Critically, the closing of the material current stock price discount to our intrinsic assessment hinges on:

1. Medium recovery of the group's earnings, from AUD 1.8 billion underlying EBITDA in 2022 to AUD 2.2 billion; and

2. The likely rerating as investors recognise the tailwinds blowing in the mobile space, such as COVID-19 impact reversal, price increases, competitive rationality, and 5G-enabled revenue/margin upside.

The implicit upgrade in TPG's 2023 EBITDA guidance range of AUD 1.9 billion to AUD 2.0 billion, albeit only 1% on absorbing AUD 20 million to AUD 25 million in transaction costs related to the whole "adventure," shows TPG's earnings recovery is on track.

Investor subscribers can read the analysis on Telstra and TPG in full here.