I believe it’s worth considering if the Telstra Corporation Ltd (ASX: TLS) share price is a buy on news of its new loyalty plan.
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.
Is the Telstra share price a buy?
Telstra recently reported its half year result showing a dividend cut of around 27% to 8 cents per share and the net profit was also down by 27.4% to $1.2 billion.
The narrowing profit margins due to NBN competition as well as mobile competition has seen Telstra’s half yearly dividend nearly halve over the past couple of years.
But, the telco may have a plan. According to the Australian Financial Review, sources said Telstra would look to reward long-time customers and those with multiple devices & services with the telco by offering more than plain-old discounts. Telstra applied on January 25 to register the name Telstra Plus with IP Australia.
Just like week Telstra sent out marketing to pre paid customers offering them more for their money including more data, longer recharge periods and additional countries that customers can call for an unlimited amount of time.
Telstra upped the data for $30 and $40 recharges. However, interestingly, Telstra has included a 6-month expiry recharge for 60GB for $150 and a 12-month expiry recharge for 150GB for $300. Monthly rechargers have the option to pay for many months upfront and save on money whilst also getting more data.
Who knows if this will work? There is a huge amount of competition facing Telstra including Optus, Vodafone, TPG Telecom Ltd (ASX: TPM) brands, Vocus Group Ltd (ASX: VOC) brands, Amaysim Australia Ltd (ASX: AYS), BoostMobile, Aldi Mobile and so on.
Aside from perhaps winning some brownie points and loyalty from customers, these long-dated contracts could have the pleasing effect of bringing forward revenue and profit.
Whilst this is a clever idea by Telstra, I don’t think it’s enough to rescue the profit (or share price) in FY19. Telstra continues to lose customers from higher-margin non-NBN services. I’d rather invest in one of the proven ASX shares below instead.
3 Proven ASX Shares To Consider Ahead Of Telstra
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