The Telstra Corporation Ltd (ASX: TLS) share price could get a boost if CEO Andy Penn can convince the NBN to reduce prices.
Telstra is our country’s oldest telecommunications business, having built the first telegraph line in 1854. In 2019, it provides more than 17 million retail mobile services, around 5 million retail fixed voice services (e.g. home phones) and 3.6 million broadband services. Telstra also has operations in eHealth, network applications and subsea cabling. In 1997 (until 2006), the Government sold Telstra to Australian investors by listing the shares on the ASX. The second batch of Government share sales, called “T2”, was conducted in 1999 at $7.40 per share.
Telstra’s NBN Stoush
One of the biggest problems that Telstra has faced over the past decade is the shift to the NBN. Not only did the telco lose control of the integral cable infrastructure, but it now has to compete on the same even terms with lots of competitors.
But, the NBN cost so much to construct that it needs to charge a lot to recoup some of the costs, which is passed onto the telcos which is then passed onto us.
As you can imagine, Telstra is highly motivated to reduce that cost if it can make it happen. That’s why Telstra CEO Andy Penn wrote a blog article saying that NBN connections are going to get more expensive as consumer data demands grow further, which could lead to a $10 a month price increase.
Therefore, Mr Penn suggested the NBN Co cut the wholesale price by $20 to $35 a month. That would be great for the telcos as they could decide to pass on however much of the cut to their customers – which could increase their profit margin whilst also delivering a cut for consumers.
But then, in an Australian Financial Review piece, NBN Co CEO Stephen Rue wrote: “It doesn’t surprise me that as the telecoms industry heads into financial results season, NBN’s wholesale pricing plans have been cast in the spotlight once again. Further, what retailer, regardless of industry, doesn’t want to get cheaper services from their wholesaler?”
Is Telstra A Buy?
The Telstra share price has performed very strongly over the past year, rising by 39% as investors looked for alternative investment ideas, and the cost cutting program which sadly includes thousands of job cuts has encouraged investors.
With a decent dividend yield, Telstra wouldn’t be the worst idea in the world but I think there are plenty of better ideas for more underlying growth such as the reliable shares in the free report below.
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