Could subsea cables save the Telstra Corporation Ltd (ASX: TLS) share price?
Telstra is Australia’s largest and oldest telecommunications business, having built the first telegraph line in 1854. Today, it provides more than 17 million retail mobile services, nearly 5 million retail fixed voice services (e.g. home phones) and 3.6 million broadband services.
It also has operations stretching across eHealth, network applications and subsea cabling. Starting in 1997 (until 2006), the Australian Government sold Telstra to Australian investors via the ASX. The second batch of Government share sales, called “T2”, was conducted in 1999 at $7.40 per share.
Telstra’s subsea cables
Telstra is committing to a major upgrade of its submarine cable network according to the Australian Financial Review.
Australia’s largest telecommunications business has cables that run from Australia to many countries in the Asia Pacific region including to the United States of America.
Telstra will use US business Infinera to upgrade its huge network of submarine cables, which should increase the capacity of the cables by 160% whilst lowering the power usage.
These cables are important for the high volume of data from services like Netflix and Youtube. Around 40% of all Asian data traffic may be transmitted on Telstra’s cables, which is valuable.
It’s good to see that Telstra is continuing to develop its ‘InfraCo’ infrastructure business. Telstra doesn’t have to rely on just job cuts to send its profit higher. Initiatives such as huge data packs and soon-to-be-released 5G phones could boost profit over the next few years.
However in the meantime, the NBN is still causing damage to Telstra’s profit margins so it’s not all good news. Competition from peers like TPG Telecom Ltd (ASX: TPM) and Amaysim Australia Ltd (ASX: AYS) is really heating up.
Is the Telstra share price a buy today?
Some value investors believe that Telstra now represents good value, even if its earnings take a hit in FY19. Some analyst estimates put Telstra’s earnings dropping by at least 25% in FY19, so it could be valued at around 13 times FY19’s earnings.
There some compelling reasons to buy Telstra, such as 5G, automated cars and the Internet of Things. However, until we find out what the pricing structure of those services is I can’t see sustainable growth of Telstra’s bottom line. There may be more reliable ASX shares out there for your portfolio such as the ones mentioned in the free report below.
3 defensive ASX shares potentially better than Telstra
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