Why Telstra’s Share Price Dropped Down by 3% Today

Australian telecommunications giant Telstra Corporation Ltd’s [ASX: TLS] share price has plummeted by 3%.

This result comes off the back of profit guidance downgrades. Telstra issued a profit-warning, conceding that competition in mobiles will continue to affect earnings.

Telstra’s share price hasn’t traded below $3 since August 2011, and investors will be feeling the burn. Over the past two years alone, the household name’s share price has fallen by over 50%.

What Caused the Drop?

The downward spiral has been in motion for some time now.

Mobile competition is intensifying, and the struggle to get a bigger slice of the pie is proving to be a challenge. Telstra’s ability to operate successfully is likely to be under threat in an increasingly aggressive environment.

The Australian Financial Review has reported that Telstra’s chief executive Andy Penn is also ‘under growing pressure’ from the ‘shrinking margins on the National Broadband Network.’

But Penn has been quick to point to the whole industry, rather than Telstra’s performance alone:

In the last 12 months alone we have moved from three big players in mobile and fixed to a situation today where we face a fourth entrant network operant in mobile, an increasing number of (mobile resellers) and more than 170 resellers of fixed.

What’s Next for Telstra?

Telstra has attempted to protect market share by extending unlimited data to almost half of its fixed broadband users, and launching an unlimited domestic plan for mobile.

The telecommunications leader has also sought to reassure shareholders by committing to this year’s fully franked dividend at 22 cents per share.

In a trading update, they also said they were winning customers, despite losing on the amount each subscriber spends.

If Telstra can strategise new sources of revenue from customer acquisition, then times could change. But the ‘challenging trading conditions’ are expected to roll into 2018/19, and investors’ patience could wear thin.

The outlook at this stage is looking grim.


Lauren Dinse,
For Markets & Money

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