Why Telstra Corp Shares Dropped More than 8%

Telstra Corporation Ltd [ASX:TLS] fell as much as 8.4% to $4.18 Wednesday morning. The drop saw billions wiped off TLS’s market capitalisation.

What happened to the Telstra share price?

TLS is Australia’s biggest telco. So what scared investors off? The prospect of TLS losing one of its most prized competitive advantages — its network.

TPG Telecom Ltd [ASX:TPM] is planning to build its own network, according to The Australian Financial Review. TPM paid $1.26 billion for a slice of the 4G mobile spectrum, and will spend $600 million over three years building its own network.

As you may already know, various telcos operate off of TLS’s network. TLS charges other telcos a fee for renting this network and providing telecommunication services similar to its own.

What now for TLS shares?

Does this mean it’s all over for TLS? Will more telcos try to build their own networks and cut TLS’s network rental income significantly? Maybe. But right now, it’s too early to tell. Within the telecommunications space, competition is rough. And just a quick look at TLS’s share price history will tell you that the giant has been falling since the start of 2015.

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Härje Ronngard,

Junior Analyst, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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