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Can Telstra Corporation Ltd (ASX:TLS) save its share price with new unlimited mobile plans?

If Telstra Corporation Ltd (ASX: TLS) was banking on a share price revival through its new mobile plan to combat competition, it would be disappointed.

The stock slumped 0.9% to $2.74 in morning trade after the Australian Financial Review reported that our biggest telco has launched a new counter-offensive with its first unlimited mobile data phone plan in an effort to hold on to its market dominance.

Telstra was forced to unveil the all-you-can-eat plan out of necessity rather than design with the stock slumping by a third over the past 12-months when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is up 9%.

The stock is the worst performing blue-chip stock over the period and the new initiative has done little to turnaround the negative sentiment, which was made worse by Morgan Stanley’s bearish report yesterday on profit expectations for the sector.

The new mobile competitor TPG Telecom Ltd (ASX: TPM) is expected to offer a new unlimited mobile plan this calendar year to disrupt the industry.

While it won’t allow for voice calls (unless it’s VOIP), its free for the first six months and $9.99 a month thereafter. In contrast, Telstra will offer an unlimited data plan for $199 a month or a fee-free “piece of mind” feature on most of its regular plans where internet speeds are downgraded to 1.5Mbps once a customer exceeds the monthly mobile quota.

The company won’t reveal the financial impact of the new move, but claims it is to remove a major bugbear of customers – paying excess fees whenever the data cap is breached.

This will make its full year profit report that much more of a nail-biting event as that is probably the first opportunity shareholders will have to grill management on the financial justification of the strategy.

This isn’t to say management has much of a choice. I can’t think of another alternative that can help Telstra meet this new market challenge.

But it isn’t all bad news. Ratings agency Standard & Poor’s issued a report today saying that the write-down on the value of the NBN is “inevitable”.

Telstra supporters have pointed to this event as a reason to buy the stock.

If the government cuts the value of the national broadband network, it will allow the company operating the NBN to lower its wholesale price to resellers like Telstra, TPG Telecom and Vocus Group Ltd (ASX: VOC).

Another positive is that a lot of bad news is already in Telstra’s share price. So while Morgan Stanley has an “underweight” recommendation on the stock as it expects the company to cut its FY19 dividend to 18 cents from 22 cents a share, the stock looks quite attractively priced to me.

The dividend cut isn’t quite as bad as the 25%-30% cut I was anticipating (click here to see why) and will put the stock on a fully-franked yield of 9%!

Management will just need to convince investors that FY19 will be the last cut it needs to make when it releases its results next month and the stock will re-rate.

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Motley Fool contributor Brendon Lau owns shares of Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited, TPG Telecom Limited, and Vocus Communications 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 Scott Phillips.

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