MENU

Another outage for Telstra Corporation Ltd: What does this mean for investors?

For a multi-billion telecommunications giant with an impeccable track-record, users of the Telstra Corporation Ltd (ASX: TLS) mobile network likely weren’t too concerned when their service went down for the first time just over a month ago.

The initial outage was blamed on an “embarrassing human error”, which copped plenty of flack on social media sites. After all, in today’s day and age, no-one could quite believe that a single person could bring a country to its knees and render it unable to communicate.

One blemish on a great company’s track record isn’t the end of the world, but when it balloons out to four phone outages within the space of two months consumers have a right to become concerned. More on that in a moment.

The company’s mobile network crashed late last week for the third time and was down again on Tuesday.

Sky News quoted the company as saying: “We are experiencing intermittent voice call failures and connection delays on our fixed and mobile networks predominantly in Victoria and Tasmania, but impacting other states sporadically.

Needless to say, this is an embarrassing issue for Telstra – particularly given that it has now experienced four issues within the space of two months. As Warren Buffett once said: “It takes 20 years to build a reputation and five minutes to ruin it.”

Now, that’s not to say that Telstra’s reputation has been damaged beyond repair. It is still widely considered to be Australia’s biggest and most reliable network, which is why so many consumers are willing to pay a premium price for their services over those provided by, say, Vodafone or Optus.

But given that those customers are paying a higher premium, they expect quality. The offer of two ‘Free Data Days’ might appease some, but the outages could well be enough to cause some customers (especially those individuals who travel and rely on having constant internet and call accessibility) to switch to rival networks.

To borrow another line from Sky News, the media group quoted one Twitter user as saying: “This #TelstraOutage thing is beyond the joke. Fix your network or charge reasonable prices. Premium is not justified anymore“.

Foolish takeaway

Telstra is still a great company, and I believe it would take more than a few outages to damage its reputation beyond repair. In saying that however, it does need to resolve these issues once and for all or else it could be forced to lower its prices to retain customers. If that were to happen en masse, it could impact margins and thus, the group’s share price.

Despite the outage, Telstra’s shares are trading more than 1% higher today, but remain nearly 20% below their 52-week high of $6.53. At today’s price of $5.25, I still think Telstra could make for a good long-term investment.

Why These 3 Blue Chip Shares Look Set to Soar in 2016

Discover The Motley Fool's top 3 blue chips for 2016. These 3 'new breed' shares pay fully franked dividends AND offer the very real prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.