Are Telstra shares still worth buying following this week's ACCC decision?

Here's why I'm backing Telstra as an all-rounder opportunity.

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Key points

  • Telstra has a strong market position -- even the ACCC thinks so
  • It’s delivering revenue growth, earnings growth, and dividend growth
  • I think it’s a buy for its defensive attributes and long-term growth

After all the excitement over the past week about the latest telco news, Telstra Group Ltd (ASX: TLS) shares are back to where they were a week ago. The share price also hasn't moved much compared to a month ago either, as we can see on the chart below.

Readers may have seen the news that TPG Telecom Ltd (ASX: TPG) has been blocked again from its agreement to use Telstra's regional network. This decision was made by the Australian Competition Tribunal following the Australian Competition and Consumer Commission (ACCC) ruling against the proposal.

The key reason given was the a risk "TPG and Optus will invest less in critical infrastructure".

What does this mean for Telstra shares?

Basically, this means Telstra won't get access to TPG's spectrum and its network won't earn quite as much, which is unfortunate for the large telco.

But, it also means that Telstra seemingly won't have as much competition for customers living in, or going to, regional areas.

The Australian Competition Tribunal noted that the ACCC said Telstra has "the largest spectrum holdings, the most extensive network coverage, the highest retail prices, and the greatest market share, demonstrating that it has a degree of market power".

That sounds like a good bull case to me!

Telstra has demonstrated its ability to raise its prices to customers amid the inflation we're seeing, which is boosting its revenue and profit. Due to its strong network advantages, Telstra is still gaining customers.

Is it a buy?

I'd guess that most households and businesses will keep paying for their telecommunications bill over most other costs. Indeed, these days an internet connection is an essential service.

The ASX telco share is not exactly valued cheaply for its projected profit. Commsec numbers suggest that Telstra shares are valued at 23 times FY24's estimated earnings and under 21 times FY25's estimated earnings.

Earnings are expected to steadily rise in the next two years, which is a good sign and could help push the Telstra share price higher.

I also like Telstra's moves to diversify its operations and earnings sources through Digicel Pacific and Telstra Health.

As a defensive ASX dividend share idea, I think it could be one of the leading blue chips. In FY24, Telstra could pay a grossed-up dividend yield of 5.9%.

The company is doing well at growing its core business, and it's steadily investing in its 5G network. I'm curious to see if 5G unlocks more earnings streams for the business. Certainly, that would be a useful boost if more fee-paying devices are connected to the Telstra network.

I'd rate it as a buy thanks to its defensive qualities, growing earnings, and solid dividends.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended TPG Telecom. 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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