Is TPG or Telstra a better defensive COVID-19 ASX share pick?

During these COVID-19 times, is TPG (ASX: TPM) or Telstra (ASX: TLS) a better defensive share pick?

I’ll set out some points for both of them:

Telstra is the better pick

Telstra is the clear market leader of the telecommunications space. Telcos get attractive monthly revenue from their customers who pay for their bill. People and businesses can’t be without their connection to the internet for work or entertainment.

As the biggest telco Telstra has economies of scale advantages and has access to unique opportunities that aren’t really available to other telcos. I like that Telstra generates earnings from other business divisions that will hopefully grow into larger divisions over time.

Telstra is the clear leader in the mobile space and that’s the direction that world is heading. 5G will see a shift towards wireless connections for more premises. If Telstra can maintain (or increase) its market leadership then the next few years could see Telstra gain an edge on its competitors, particularly with TPG and Vodafone being delayed in their merger.

And of course, Telstra has an attractive fully franked dividend yield of 5%.

No, TPG is the better pick

TPG may not be as big Telstra, but it arguably is the better telco. TPG offers customers a cheaper service and it has a cheaper cost base too.

The combination with Vodafone Australia definitely makes a lot of sense. It will save on a lot of operating costs. It will mean the combined business will be able to market to both sets of customers. It also means that the combined business will only have to build one mobile network rather than two.

I’m not sure the market is fully pricing in the opportunity that’s presented to TPG. Another benefit that’s coming to TPG shareholders will be a special dividend and ordinary dividends are expected to be higher too.

So which one?

At the moment I like the idea of TPG more with the upcoming merger. But if 5G works well for Telstra then it could be a clear winner in a couple of years. But having said all of that, telcos are going to be slow earnings growth going forward I think. I’d much rather buy technology shares like these:

Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

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