The future Telstra Corporation Ltd (ASX: TLS) share price could all depend on 5G.
The telco is taking serious punches in both its mobile and broadband divisions. Low-price competition from TPG Telecom Ltd (ASX: TPM), Amaysim Australia Ltd (ASX: AYS), Vocus Group Ltd (ASX: VOC) and a myriad of others are driving profit margins down.
But 5G is being upheld as a service of the future that could revive Telstra's fortunes.
Magellan Financial Group Ltd (ASX: MFG) recently share a piece on Livewire that discussed the positives and negatives arising from 5G.
The new technology with 5G could change our lives because it could enable automated cars, remote surgery, AI, augmented & virtual reality, the internet of things, smart factories and so on.
5G may offer data speed at lower costs and much faster speeds/latency – where the signal goes up to a satellite and back down again much faster – which is very useful for a service like an automated car.
However, whilst 5G sounds promising there are also a couple of large hurdles that need to be overcome. Firstly, the internet is proving to be less secure than people would like. Various websites, companies and political parties have been hacked in recent years. If everything is connected to the internet, like your car, then it would need to be virtually impenetrable from hackers before it could be fully trusted.
Another challenge is the fact that the best technology provider, Huawei, has actually been banned by some countries. 5G is essential for the next class of technology companies to succeed. But with the US and China currently battling it out with a trade war, it's unlikely that 5G can reach its optimal roll-out.
Finally, how much more will telco customers actually be willing to fork out for these services? Household budgets are quite tight at the moment. 5G phones and other services aren't expected to be cheaper than previous iterations.
Foolish takeaway
Telstra is trading at around 16x FY19's estimated earnings, which is too expensive for me to consider an investment.
