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Will new NBN hurt Telstra shareholders?

Investors have grown anxious about Telstra’s (ASX: TLS) position regarding the NBN under the Coalition government, but the company’s top brass have reassured investors saying they’ll be no worse off.

The Labor government previously described negotiations with Telstra as being so tough that they’ll only respond when a gun is aimed at their head and predicted the Coalition will start in a weaker position to the telco giant. Chairwoman Catherine Livingstone told shareholders at yesterday’s AGM in Sydney that the company will work in the best interest to protect shareholders.

Alphinity Investment Management principal Bruce Smith told The Australian that, “there is some mutual dependency between the government and Telstra on the NBN, which can be a good thing.” Telstra is rumoured to have had preliminary discussions with Communications Minister Malcolm Turnbull to begin drafting a deal but formal negotiations are not expected to begin until the NBN Co elects it new board members, appoints a new CEO and the coalition government finishes its 60-day review.

Considering Telstra’s position in the internet market as the most dominant player, shareholders can find comfort in knowing that whilst we wait for a decision on the type of network to be rolled out, the company will continue to draw more revenues and return to shareholders. Competitors iiNet (ASX: IIN) and TPG Telecom (ASX: TPM) had previously criticised the ability of Telstra to use its dominance to draw in more customers between now and the expected completion of the NBN in 2019.

Telstra’s focus on connectivity, customer service, convenience and reliability will see it transition to the NBN with many more customers than its competitors. Telstra continues to offer mobile customers competitively priced fixed internet packages and business solutions that will enable it to bundle its dominance in both industries together.

Singapore Telecommunications’ (ASX: SGT) Optus, previously warned that Telstra will remain king of the mobile market until 2019, “Telstra’s commanding share of revenue …. In combination with its fixed network and $16.5 billion of additional revenue due to NBN-related payments means its position in the mobile market is likely to continue.”

The national broadband network will create a level playing field for all ISPs, which will be forced to pay the government-run NBN Co instead of Telstra for network access. However its rivals aren’t completely convinced. “Optus said Telstra’s dominance of the market would remain after the NBN’s completion because it did not need the fibre optic cabling connecting key facilities like telephone exchanges,” according to The Australian Financial Review.

Foolish takeaway

The telecommunications industry changes every day. The telecommunications and technology sectors can be extremely lucrative for investors but uncertainty is always present because one breakthrough could change the industry and make existing products redundant. Telstra is at the forefront of emerging technologies like cloud and e-health, but has a commanding grip on both fixed internet and mobile markets. In this Fool’s opinion, investors looking for a core stock with great dividends could do a lot worse than to add Telstra to their portfolios.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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