Investors considering Telstra Corporation Ltd (ASX: TLS) shares should keep in mind what's going on with the wider industry, which includes peers like TPG Telecom Ltd (ASX: TPG).
It's worth asking whether Telstra is the best telco in the sector?
It's certainly the biggest, with a current market capitalisation of $47.6 billion according to the ASX.
But, let's have a look at the growth rates of both businesses.
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Telstra versus TPG
First, it's important to keep in mind that Telstra reported its result for a full 12 months to 30 June 2022. But, TPG's recent result was for the six months to 30 June 2022.
Telstra reported that its total income declined 4.7% to $22 billion. TPG's half-year service revenue increased by 0.7% to $2.175 billion. It benefited from a larger mobile subscriber base, which is expected to help in the second half.
TPG reported that it is seeing "strong" mobile momentum, with a 135,000 net increase of mobile subscribers. Telstra said that it added 155,000 net retail postpaid handheld services and 218,000 wholesale services.
Telstra's mobile average revenue per user (ARPU) for postpaid handheld went up 2.9%, while TPG's ARPU for mobile went up 1%.
In terms of earnings before interest, tax, depreciation, and amortisation (EBITDA), TPG's half-year EBITDA dropped 5.3% to $837 million, though excluding $35 million of restructuring costs, it was $872 million. In FY22 guidance terms, Telstra's underlying EBITDA rose 8.4% with mobile EBITDA growing 21.2%.
Interestingly, both Telstra and TPG reported dividend growth. TPG's board grew the interim dividend by 12.5% to 9 cents per share. Telstra decided to increase its final dividend by 6.25% to 8.5 cents per share – that was the first increase in seven years for owners of Telstra shares.
Regional network sharing agreement
Earlier this year, the two telecommunication businesses announced an agreement to work together.
Telstra said that, subject to clearance by the ACCC, this will be a win for regional Australia, providing more choice and additional capacity. Telstra also pointed out that it has committed $616 million to secure the maximum possible amount of low band spectrum to maintain its "leading mobile network for customers, especially in regional and rural Australia".
For TPG, the proposed network sharing deal will boost its mobile coverage to 98.8% of the population and "deliver a step change in mobile competition across regional Australia". As a result, customers will be able to access regional 5G services faster than otherwise would have been achievable.
Outlook
TPG said it expects earnings momentum to accelerate in the second half of FY2, with the full run rate benefit of a higher mobile subscriber base, targeted strategies, and tactical pricing to support fixed product margins. It's on track to deliver merger synergies of between $125 million to $150 million in 2022, a year earlier than expected.
With Telstra's T25 strategy, it's aiming to grow its earnings per share (EPS) by the high-teens between FY21 to FY25. In FY23, Telstra is expecting continuing underlying growth, with underlying EBITDA guided to be between $7.8 billion to $8 billion in FY23, which could be a boost for Telstra shares. It seems Telstra is starting to turn things around.
