The Telstra Corporation Ltd (ASX: TLS) share price is up nearly 2% after receiving a boost from the Labor Party.
Telstra is Australia’s largest and oldest telecommunictions 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.
How Labor boosted Telstra’s share price by 2%
The Federal Labor Party has suggested it could approve the NBN Co cutting the value of the national brandband network in a write-down, according to the Australian Financial Review.
Michelle Rowland, the communications spokeswoman from Labor, said that the economics of the NBN need fixing. If the NBN was devalued it would mean NBN financial targets would be reduced and it could charge cheaper wholesale prices to Telstra, Optus, Vodafone and TPG Telecom Ltd (ASX: TPM), which could then charge consumers lower prices.
However, such a write-down would be politically difficult. Labor might win plaudits from consumers, but it could cause a major problem for the reported federal budget.
As long as the NBN is targeting a return above the long-term government bond rate it doesn’t affect the government budget or balance sheet. The NBN corporate plan is targeting a return of 3.2%, significantly less than the 7% target previously.
A write-down could cause a big hit to the government budget if it had to recognise the devaluation.
Why this helps Telstra
The NBN was targeting average revenue per customer of $52, which seems a bit stretched considering telcos are only charging customers between $60 to $70 for most packages. There is very little profit margin potential.
A write-down of the NBN could see consumers being charged less for NBN access and/or the telcos’ profit margins could increase.
Some investors think now is the right time to buy Telstra shares, particularly because the Vodafone Australia merger with TPG could be more likely to go ahead after TPG cancelled its mobile roll-out.
I’m not convinced that Telstra shares will grow much further in value until more of the economics surrounding 5G are revealed. Profit growth could be difficult in the short term. Instead, if you’re looking growth, one of the growth shares in the free report below could be a better place to look.
2 ASX shares growing much faster than Telstra
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