There are only a handful of large telco companies on the ASX to invest in, so what’s better? Telstra Corporation Ltd (ASX: TLS) or TPG Telecom Ltd (ASX: TPG)?
What Are The Differences?
The first obvious difference is the size of the two companies. Telstra is an Australian telco giant, with a market capitalisation of around $39 billion, while TPG is valued at just over $6 billion.
Telstra is a dominating force in the market, with 17.7 million retail mobile services and 3.6 million retail fixed broadband services. At last count, TPG had approximately 1.9 million broadband subscribers, placing it well-and-truly behind Telstra.
TPG, as the owner of iiNet, is mainly focused on broadband services and sees most of its revenue come from this sector. Telstra, on the other hand, benefits more from mobile services, with broadband making up a smaller chunk of the business.
While both groups have struggled with NBN rollout, TPG seems to have made more of an impact and is earning the trust of Australia’s consumers. iiNet was named Best NBN Provider by Choice in 2018 and Internet Service Provider of the Year 2018 by Roy Morgan. Brand trust and perception can have a significant impact on share price, so I see this as an advantage for TPG.
As the more established competitor, Telstra pays a much larger dividend: the yield is currently around 3.8%, compared to a yield of 0.6% for TPG shareholders. However, over the last 12 months, TPG has seen share price growth of over 14%, while Telstra has grown only 2%.
I see Telstra as the safer, more established investment more suitable for income investors while TPG may provide higher growth opportunities.
Merger with Vodafone
TPG shareholders are currently facing an uncertain situation that could have a major impact on the future direction of the business. There is a merger deal with Vodafone on the table, announced in August last year.
The ACCC is reviewing the proposed deal after concerns were raised about reducing the number of players in the Australian telco market. The ACCC will investigate the impact this could have on consumers and are expected to announce a decision by May this year.
If the deal does move forward, this could give TPG a significant boost to the services they provide and the customers they support, moving them one step closer to Telstra.
Summary
Both of these companies should be considered when developing an investment portfolio, but the best choice will ultimately come down to your investment style and needs. To read about how a change to franking credits could impact Telstra, check out this Rask Media article.
If you’re looking to invest in a market leader paying a decent dividend, Telstra is your best bet. If you’re looking for growth opportunities, TPG may be the better buy if the deal with Vodafone goes ahead.
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Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.
