Home Telecoms & NBN Telstra shares take another hit, fall to seven-year low
Telstra shares take another hit, fall to seven-year low Featured

The shares of Australia's biggest telco, Telstra, hit a seven-year low on Tuesday following a big drop on Monday after the company said its earnings for the current financial year would come in at the bottom end of guidance – between $10.1 billion and $10.6 billion.

The company's shares fell 4.9% to $2.87 on Tuesday as analysts warned that there were no obvious solutions to the problems faced by the telco, the Australian Financial Review  reported.

The downgrade of the expected results was announced by chief executive Andy Penn on Monday, saying the company was facing a difficult trading period ahead due to the “challenging dynamics” of the rollout of the national broadband network and increasing pressure on its margins from competitors.

Penn issued his warning in remarks to a JP Morgan summit in Boston where he also stressed that increased competition in the market, and the NBN, had eaten into Telstra’s profits.

The AFR cited analysts as saying they needed clarity on how Telstra would handle the growing price competition in mobile services, the effect of TPG's entry into the mobile market, how the big telco would react to the increasing loss of revenue to the NBN market and how it would deal with the increasing investment by Optus in network quality.

Citi analysts were quoted as saying: "In our view Telstra needs to be more aggressive with cost-cutting, and could consider more drastic actions including asset sales, tower-sharing agreements and even providing competitors with access to core infrastructure in order to boost wholesale revenues.

"We see 5G providing cost savings due to efficiency gains over 4G; in the current competitive environment this simply allows for continued data limit growth rather than improved profitability.

"Similarly with NBN competition so intense, we think any wholesale price cuts are likely to be competed away rather than delivering margin expansion for retail service providers."

Analysts from UBS said: ""In recent weeks we've seen TPG reveal aggressive new mobile plans, and the industry launch 'unlimited' mobile data plans for the first time. [Telstra's announcement] added another feather to the bow for the bears.

"Based on status quo, we only see downside to our long-term EPS of 22¢ per share ... upsides [such as NBN failing to respond to technology threats] are long-dated – with potential regulatory/commercial fetters for Telstra. In the meantime, catalysts look negative."

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Sam Varghese

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Sam Varghese has been writing for iTWire since 2006, a year after the sitecame into existence. For nearly a decade thereafter, he wrote mostly about free and open source software, based on his own use of this genre of software. Since May 2016, he has been writing across many areas of technology. He has been a journalist for nearly 40 years in India (Indian Express and Deccan Herald), the UAE (Khaleej Times) and Australia (Daily Commercial News (now defunct) and The Age). His personal blog is titled Irregular Expression.

 

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