At time of writing, the share price of Telstra Corporation Limited [ASX:TLS] is up 7.26%, trading at $3.18.
The Telstra share price has been in a lengthy slide since mid-2015, as shown below:
Today, the share price of Telstra spiked up on news that a potential competitor would not be entering the mobile network market, which was music to Telstra investors’ ears.
While the news for Telstra is good, Markets & Money is thoroughly bearish on the Telstra share price.
Why did the Telstra share price do this?
For big former monopolies like Telstra, competition is the bane of their existence — they will naturally try to leverage their size to create efficiencies of scale and as a result deliver better margins.
But today, TPG Telecom Ltd [ASX:TPM] announced it would be ceasing the rollout of its mobile network in Australia, due to ‘factors outside TPG control.’
It cost TPG a total of $100 million prior to the announcement, with an additional $30 million in capital expenditure already committed.
In essence, they are unable to do so because of the Australian Government’s prohibition on the use of Huawei equipment in 5G networks.
TPG chose Huawei initially as the small cell architecture from Huawei allowed for ‘a simple upgrade path to 5G.’
Huawei has been in the news today as the US Justice Department filed a range of criminal charges against the Chinese telecommunications giant and CFO Meng Wanzhou, who is currently out on bail in Canada.
US Commerce Secretary Wilbur Ross said companies like Huawei ‘pose a dual threat to both our economic and national security.’
Where will Telstra go from here?
In Telstra’s October AGM, 62% of voters voted against the company’s remuneration report, dissatisfied with the executive bonus structure the company had in place — a second strike could trigger a board spill.
Following this, they announced a big push into the 5G segment, which will be Australia’s newest mobile network.
It currently has a P/E ratio of 9.9 which is relatively attractive, combined with a dividend yield of 5.07%.
On face value, these look like solid numbers.
The problem, however, is that its products and services are operating in an increasingly competitive market.
Just because TPG won’t have a mobile network for the moment, doesn’t mean it won’t continue to aggressively market products that have the potential to eat into Telstra’s market share in other segments. Not to mention the impact that Optus and Vodafone could have.
Consequently, while the news for Telstra may be good for now, things may change.
For Markets & Money