MENU

Which of these telecom stocks can take on Telstra?

Over the next five years, the mobile market is expected to triple in size, according to Telstra (ASX: TLS) CEO David Thodey during an interview last week. Although the percentage of people who own mobile phones is already very high, there is still more room to grow, and their use will become more pervasive as technology allows people to access and use information and services even more.

Along with Telstra, below are other players in the industry that can grow right along with the telecommunications giant.

Singapore Telecommunications (ASX: SGT) operates the Optus brand mobile phone and broadband and fixed line phone service. It also holds interests in other telecom businesses located in Africa, India and South East Asia.

Its share price is $3.15 and ithas a price-earnings (PE) ratio of 18. Average annual earnings after tax growth over the past five years is -2.85%, and net profit margins have slowly been shrinking over the past five years, down from 25.7% to 19.8%. It controls about 16% market share of Australia’s telecom industry, but customer number growth has lessened in the past year.

Telecom Corporation of New Zealand (ASX: TEL) derives 84% of its $3.5 billion revenues from its NZ market, but still 13% or $454 million comes from Australian business. News of the company thinking of selling its 10% share in Hutchinson Telecommunications Australia (ASX: HTA) came out this month, and the company itself released an announcement that it is considering a possible sale of AAPT, an telecom service provider that has a fibre cable network possibly worth more than $400 million. It is all to focus on core business in NZ.

Revenue has been steadily decreasing since 2009, and earnings after tax have been falling on average over the past five years by 18.8%. It is currently at $2.01 a share with a PE of 12.9.

Hutchinson Telecommunications Australia owns a 50% stake in Vodafone Hutchinson Pty, which operates the Vodafone mobile phone brand in Australia, where it is number three in market share, controlling about 10%. It has been upgrading its network after it had many complaints about poor service several years ago.

Net earnings have been mostly losses, achieving only one profitable year, 2010, out of the last 10. Its share price hit a low of $0.02 in January 2013, but since September it shot up to $0.13 on rumours that Vodafone, owner of the other 50% in the joint venture, might buy out the company’s 50%, but now has settled back down to $0.08.

Foolish takeaway

Telstra will have the most to gain out of this expected industry expansion. It already controls 40.4% of the industry, and with its 50% ownership in Foxtel, it is wanting to create a so-called “triple-play” business that bundles pay TV, mobile, and internet services. By involving itself in those three areas, customer’ business become “sticky” in that they become so connected with the service they are more likely to stay with the company than go to a rival.

What was once just a phone company being left in the dust by computers and the internet is now the digital telecom star in Australia because it didn’t try to resist the change, but took it on as its guide.

Think about your own total return and find out about companies with good dividends. Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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.