TPG will build its own mobile network in a move set to shake up the Australian telecommunication landscape, having paid the government $1.26 billion for a slice of the nation's 4G mobile spectrum. 

The company says it will spend $600 million over three years building a network that will cover 80 per cent of the population.   

Telstra's share price plunged on the news, falling 6.5 per cent in early trade. By mid-morning, the country's largest telco's shares had shed 30¢ and were trading at $4.26 — the lowest price since December 2012. 

TPG currently buys network access for its mobile products from Vodafone. The move will make it the country's fourth network operator, competing with Telstra, Optus and Vodafone. 

TPG chief executive David Teoh said TPG would leverage its successful fixed-line broadband business to bring new competition to the mobile market. 

"We believe that our mobile strategy will be complementary to our ongoing fixed-line business, with the ability to bundle mobile and fixed services expected to have a beneficial effect on our already low fixed services customer churn," Mr Teoh said. 

TPG entered a trading halt on Wednesday morning before announcing its plans for the network, which will be funded in part by a $400 million share entitlement offer. 

Windfall for the government

It was revealed earlier on Wednesday that TPG had won the rights to a chunk of Australia's 4G spectrum at a cost of $1.26 billion, after an auction in which it bid against Optus and Vodafone.

Industry insiders were shocked by the price for the two times 10 MHz purchase, saying it was among the most expensive spectrum bought anywhere in the world.   

Vodafone meanwhile secured two times 5 MHz for $285.9 million, the Australian Communications and Media Authority said, while Optus emerged from the auction empty-handed. 

The combined $1.5 billion sale price was well beyond the government's reserve price of $857 million for the spectrum left over from its 2013 Digital Dividend auction. 

Telstra was not allowed to bid because it had already purchased significant amounts of 700 MHz in the auction four years ago.  

TPG said it needed about 500,000 customers for its mobile network to break even. It has over 2 million broadband subscribers. 

TPG is offering shareholders one new share for every 11.13 shares already owned at $5.25 each - a 20.2 per cent discount to its last closing share price. 

A spokeswoman for Communications Minister Mitch Fifield said the cash would go into the government's consolidated revenue. 

Digital Dividend's leftovers

The Digital Dividend auction in 2013 was conducted after television networks switched from analog to more efficient digital signals. It generated $2 billion for the government, with a reserve price of $1.25 per MHz per population.  

Telstra and Optus both purchased high and low frequency spectrum at that time - Telstra bought the most and paid $1.3 billion, while Optus paid $650 million. TPG purchased its first spectrum in Australia, securing 20 MHz at 2.5 gigahertz (GHz) for $13.5 million. 

Telstra and Optus were the only telcos in 2013 to buy 700 Mhz spectrum, which is much better for sending signals through congested city areas. The lower frequency travels through walls easier, in much the same way the bass notes in music do. 

Vodafone withdrew from the 2013 auction and did not purchase any spectrum, leaving the government with 30 MHz of spectrum at the 700 MHz frequency. Then in early 2016, Vodafone made an unsolicited bid of $600 million for the spectrum, which angered its competitors.  

The government launched a public consultation and decided to auction the spectrum off with a similar reserve as the 2013 auction.