Can 5G help push the Telstra share price higher by 2021?

Can 5G be a game changer for Telstra? Here's why I think the rollout of 5G services could help to lift Telstra's share price towards 2021.

| More on:
Man pushing large rock up hill with sunrise in background

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Telstra Corporation Ltd (ASX: TLS) share price has dropped significantly since mid-February, falling from $3.89 on 11 February to $3.14 at the time of writing, a decline of 19%.

A number of companies on the S&P/ASX 200 Index (ASX: XJO), have regained a significant proportion of their early phase coronavirus losses since March. However, the Telstra share price saw its downward trend continue until the end of April, falling to $2.99. Since then, Telstra shares have only recovered slightly.

So, can the launch of 5G services drive the Telstra share price higher?

Telstra must go beyond its T22 strategy

Telstra was the undisputed king of the Australian telco market for several decades. It owned the national fixed line network for broadband and voice, and therefore was able to set the price that it charged to other telcos using its network. This flowed through to high margins and high company profits. 

Australia's National Broadband Network (NBN) has changed all that.

Telstra no longer owns the national network. Australia's largest telco now operates on a level playing field with other telcos such as Optus, TPG Telecom Ltd (ASX: TPM) and Vocus Group Ltd (ASX: VOC).

In a March market update, Telstra commented that it is on track to achieve most of its T22 strategy goals. This includes reducing underlying fixed costs by $2.5 billion annually by the end of FY22. This strategy will help it evolve into a leaner, more efficient telco provider in a new era of Australian telecommunications.

However, I believe that Telstra must go further than just cost-cutting and restructuring if it is to grow its business over the longer term.

Launching new 5G services is a key way that Telstra can achieve this.

Why 5G could be the game changer for Telstra

By offering wireless mobile broadband via its own 5G network, this will enable Telstra to bypass the NBN.  Telstra will also be able to obtain higher profit margins.

In late May, Telstra reached a significant milestone in its 5G rollout, will 5G coverage switched on in selected areas of 47 cities and larger regional towns across Australia.

Telstra's 5G network has reached speeds of over 700 Mbps – that's 7 times the current speed of the 4G network. It's also faster than the plans nearly of all existing NBN customers. It is also significantly faster than its main 5G rival Optus, which currently only offers maximum speeds of 400 Mb/s.

Can 5G lift the Telstra share price higher?

5G mobile broadband access is unlikely to ever fully replace NBN's fixed broadband access. However, it could see Telstra potentially expand its mobile subscriber market share over the next few years. This could flow through to higher revenue, higher profitability and potentially a higher share price.

However, with a full 5G launch not expected until later this year or early next year, I don't anticipate any positive impact on Telstra's share price until well into 2021.

Motley Fool contributor Phil Harpur owns shares of Telstra Limited. 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.

More on Share Market News

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »