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Winners and losers in the telco war

Telstra Corporation (ASX: TLS) has hit back at claims its dominant position in retail telecommunications is stifling competition, according to a report in today’s Australian Financial Review.

Vodafone Hutchison Australia boss Bill Morrow has called for more stringent scrutiny of Telstra, describing  it as the most vertically integrated telco in the world, warning that its domination in both fixed line and mobile telecoms as well as 50% stake in Foxtel, could entrench serious imbalances.

In response, Telstra has said that competition had forced the company to invest heavily in its mobile network and improve customer service, and accused Vodafone of seeking protection not regulation.

Telstra’s market share has risen dramatically in mobile services with 958,000 new customers in the six months to Decemebr 2011. CBA analysts estimate that Telstra has a 46% share of mobile customers, with 32% for Optus – owned by Singapore Telecommunications (ASX: SGT) and 23% for Vodafone.

Expect more complaints from the junior telcos in the near future, with many fearing that Telstra’s dominance of the market could expand under the National Broadband Network  (NBN).

Just last week, Telstra increased landline fees as it tries to make as much revenue as it can from its copper network, before the NBN replaces it. Customers are opting to use mobiles instead, or using fixed lines less. The company still has to support the copper network, so has to increase fees to cover the cost of maintaining it.

Slightly off topic, but if you still use an older mobile phone and have signed up with Telstra, you should know that the company plans to turn off its 3G network at the end of August, and users will be forced to upgrade their handsets or face using the much older and slower 2G network. Telstra’s Next G network operates on both 3G and 4G, but a small percentage of older mobile phones (pre-2007) are incompatible with the service.

Despite the increasing friction between the telcos, it didn’t stop many of them outperforming the market in July.

Melbourne IT (ASX: MLB) climbed 7.3%, TPG Telecom (ASX: TPM) was the best performer shooting up 15.2%, while Telstra added 8.9% and Telecom NZ (ASX: TEL) posted a 8.2% rise, compared to the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) rise of around 5.8%.

The Foolish bottom line

With several of the telcos paying dividend yields of more than 5%, it could be a sector to watch, offering potential growth and decent dividends.

If you’re in the market for some high yielding ASX shares, look no further than our ”Secure Your Future with 3 Rock-Solid Dividend Stocks” report. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.  The Motley Fool ‘s purpose is to help the world invest, better.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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