Telstra (ASX:TLS) launches new 5G NBN alternative

Telstra Corporation Ltd (ASX: TLS) is launching a new 5G internet product that is set to stand alongside its nbn offerings.

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Telstra Corporation Ltd (ASX: TLS) shares have come under pressure in recent weeks. Ever since the company posted its full-year results for the 2020 financial year last month, investors have been hitting the sell button on the Telstra share price. On current pricing, Telstra shares are now down more than 19% since 4 August.

But perhaps a new 5G product offering could change investors’ minds on Australia’s largest telco.

5G comes online

According to the Australian Financial Review (AFR), Telstra is set to launch a new ‘fixed wireless’ 5G internet offering, using the new generation technology to offer an alternative to the national broadband network (nbn). 

The ‘5G home Internet’ package is set to offer users a wireless modem similar to conventional fixed-line internet services. But rather than a physical fixed nbn connection, the connectivity is delivered over Telstra’s mobile network.

The AFR said the service would “offer download speeds of between 50 and 300 megabits per second for $85 a month, with a monthly data allowance of 500GB… the pricing and speeds mean it will offer similar value to the NBN’s 50 and 100 Mbps plans.”

Apparently, the new product will initially be ‘invitation only’. It will only be offered to customers living in areas where 5G network coverage is strong and there are only inferior fixed-line alternatives.

This is important because, under the agreement that Telstra made with the nbn, Telstra is not permitted to offer any service that directly competes with the nbn network. This was done so that Telstra would receive payments for each customer it lost to the nbn.

The AFR quotes Federal Communications Minister Paul Fletcher as stating that he was ‘confident’ the announced product wouldn’t violate this agreement.

Is Telstra a 5G buy today?

As an existing Telstra shareholder, I think this new product offering is a good development for the company. Existing nbn connection services are notoriously unprofitable for the retail on-sellers like Telstra. There’s barely any profit margin in them at all. If Telstra can attract customers with this 5G alternative (which would presumably carry far higher margins), it will be good news for its bottom line. Assuming Mr Fletcher is correct and it doesn’t violate the Telstra/nbn agreement of course.

Thus, I think Telstra shares are looking attractive today near the company’s 52-week low. At these prices, Telstra’s hefty 16 cents per share annual dividend also offers a yield of 5.69% (or 8.13% grossed-up with Telstra’s full franking credits).

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Motley Fool contributor Sebastian Bowen 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.

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