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Is 5G the answer to Telstra’s share price troubles?

Telstra Corporation Limited (ASX:TLS) CEO Andy Penn announced at the Consumer Electronics Show in Las Vegas this week that the telco has secured exclusive deals for 5G handsets with multiple smartphone manufacturers. 5G-capable phones will be available from Telstra by the end of June.

Although the details on these deals are unknown, it is increasingly evident that Telstra is very serious about leading Australia forward into a 5G world. Ensuring readiness for the new generation of cellular mobile communications is part of its bold T22 strategy, an effort to give new life to the company amidst years of falling fixed-line revenues.

Once a government-owned monopoly, Telstra’s fixed-line network infrastructure is the original source of the company’s legacy position at the top of the Australia telco game. However, high levels of competition, emergence of substitute technologies, shifting consumer preferences and the nationwide rollout of the NBN have taken their toll. The Telstra share price is less than half what it was four years ago.

Is 5G the answer to Telstra’s troubles? Not in the short term, at least.

The powerful technology has a slew of futuristic applications including autonomous vehicles and the Internet-of-Things. The rapid potential growth of these technologies is something Telstra is hoping to capitalise on with its Network Applications and Services (NAS) segment.

This is a long-term view, however. The truly revolutionary power of 5G technology lies within the millimetre wave band and auctions for millimetre wave spectrum are as far away as 2020. While Telstra has demonstrated its enthusiasm to be a 5G-leader, it’s yet to be seen whether the investment will pay off in terms of generating shareholder value. It’s not reasonable to think that Telstra’s competitors are going to miss the 5G train, Telstra’s just boarding early.

The telco’s short-term fate is more likely to be affected by the whim of the ACCC. The announcement of the ACCC’s decision regarding the TPG and Vodafone merger has been pushed back to 28 March 2019. If the merger is blocked, Telstra faces the same competitive threats that were feared months ago, particularly involving the launch of TPG’s mobile services, which are likely to be aggressively priced.

Motley Fool contributor Cale Kalinowski has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra 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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