Is now the time to buy shares of Telstra Corporation Ltd?

Credit: Telstra

For all the talk that Telstra Corporation Ltd’s (ASX: TLS) fourth mobile phone outage in the space of two months could damage its reputation, investors certainly weren’t showing their concerns on Tuesday.

Telstra Corporation, which is Australia’s biggest telecommunications company, has long been regarded as having the best and most reliable mobile network. That reputation has allowed it to charge customers a premium over services provided by other companies such as Optus or Vodafone (once dubbed ‘Vodafail’ due to its own network issues), which is one of the reasons behind the company’s strong growth in recent years.

In light of its most recent outages however, some investors have begun to wonder if its reputation has been permanently damaged. Many even took to social media platforms over the issue, suggesting that Telstra is no longer in a position to charge more for its services.

What will happen to Telstra?

To be clear, it is unlikely that Telstra will experience a mass exodus of customers as a result of recent events. Telstra is still the company that offers the broadest mobile coverage in Australia and its long-term performance and reliability should take centre stage over the last few outages.

In saying that, this is clearly an embarrassing issue for the business, and one that it needs to resolve as soon as possible. The more outages its customers experience, the more reason they have to explore the alternative services being offered by Telstra’s rivals (who I’m sure would welcome any Telstra converts with arms wide open).

Despite the latest outage, the telco’s shares actually rose 1.3% on Tuesday, compared to a flat finish for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). Granted, they’re still trading at a near 20% discount to their 52-week high, but that could be a reason to buy the shares rather than avoid them.

After all, while Telstra derives much of its earnings from its mobile business, it is also a leader in emerging technologies such as eHealth and machine-to-machine communications which could provide the foundations for plenty of future growth.

At the same time, Telstra enjoys strong cash flows from operations and offers a lucrative, fully franked dividend yield. At the current share price of $5.26, it is forecast to yield just under 6% fully franked this year, which grosses to about 8.6%. Needless to say, you won’t find that kind of return from a savings account – at least not in this low interest rate environment.

Foolish takeaway

Telstra is a high-quality business, and its quality should not be underestimated based solely on these short-term issues. Of course, there is a risk that if they keep reoccurring it could result in higher customer churn, but right now investors shouldn’t get too far ahead of the current situation.

If, however, you have lost faith on Telstra’s bright future, there are other telecommunications businesses that could be worth buying instead, including Vocus Communications Limited (ASX: VOC). It recently completed its merger with the previously-listed M2 Group and could be a decent buy at today’s price levels.

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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.

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