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Here’s 3 dirt cheap telco shares

The telecommunications industry is supposedly one of the safest out of all of the sectors because it provides a utility service and people will keep paying for internet and data over most things.

However, that hasn’t stopped the share prices of some of the biggest telcos being smashed over the past few years mainly because of NBN worries.

Here are three telecommunications ideas:

Telstra Corporation Ltd (ASX: TLS)

The Australian telco giant has seen its share price fall by almost 50% over the past three years to today’s $3.51.

It lost its monopoly on the infrastructure when it had to sell to the NBN, which is now significantly impacting broadband profit margins. Not only that, but some of the smaller telcos are offering discounted mobile packages too, hurting Telstra margins.

However, there is hope for Telstra with the coming of 5G next year. It is the bedrock of AI, automated cars and connected homes, all of which should hopefully increase Telstra’s revenue.

Some analysts believe Telstra’s earnings (and the dividend) may drop a bit further over the next couple of years, but today’s share price could be near the bottom price.

Telstra is currently trading at 10x FY18’s estimated earnings.

TPG Telecom Ltd (ASX: TPM)

TPG has grown and acquired its way to being one of the major players in the telecommunications industry.

iiNet and TPG are heavily reliant on broadband revenue, its share price has fallen by over 50% in less than two years, which is why TPG plans on launching its own mobile service in Australia as well as creating one in Singapore.

The mobile plan is expensive but necessary if 5G becomes the prime choice for households to get their internet.

TPG is currently trading at 16x FY18’s estimated earnings.

Amaysim Australia Ltd (ASX: AYS)

Amaysim is one of the smaller telcos which piggybacks off Optus’ 4G network to deliver its mobile service. It also recently acquired Click Energy so that it can provide a full utility package to customers and offer value bundles.

The business has steadily grown its subscriber base thanks to its cheap prices and expects underlying earnings to keep growing over the medium-term.

Foolish takeaway

I think the telco industry shouldn’t be ignored just because of the NBN. Of the three, I believe TPG has the best chance of beating the market because it has a lot to gain if it can set up a profitable mobile network. However, I wouldn’t buy any telco share until I know if NBN charges to telcos will be reduced.

However, TPG may not be the best place for your cash, these top stocks could be better investments.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited and TPG Telecom Limited. 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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