Exactly 11 months ago, we reported debilitating news for Aussie telco giant Telstra Corporation Ltd [ASX:TLS], when the company cut a quarter of its entire workforce as a cost-cutting measure to put Telstra2022 into fruition.
This strategy, which caused Telstra’s shares to hit 10-year lows, was a massive gamble — though likely the last trick they had up their sleeve. It was their last attempt to grab the front position of the mobile market in the lead up to the 5G roll-out.
Right now, Telstra’s shares are up 29.5% for the year. So it looks like the gamble has paid off.
Cards dealt in Telstra’s favour
Investors were initially sceptical of Telstra’s risky manoeuvre, particularly when news of a TPG/Vodafone merger was on the cards. This merger would have fused the second- and third-placed Aussie telcos, forming a worthy competitor against Telstra.
Last week, however, the ACCC announced it had opposed the merger, on the grounds that keeping the networks separate would create more competition.
To the contrary, the blocked merger has in fact ‘lower[ed] the risk of a price war’, according to ratings agency Moody’s.
More importantly, the legal proceedings have created a distraction, allowing Telstra to jump in the lead in the race to 5G.
Yesterday, Telstra opened pre-orders for its first ever 5G mobile broadband device online, the HTC 5G Hub. It’s also the first 5G-enabled device available in Australia.
It will be available in Telstra stores across Australia from 28 May, coinciding with the release of Samsung’s Galaxy S10 smartphone, which will be exclusive to Telstra at launch.
Adding further incentive for customers to get their hands on this ‘game changer’ technology, Telstra is promising to ‘make 5G available for free for a minimum of 12 months, so everyone with a compatible device has the opportunity to try 5G.’
But there is a catch.
Was it really a race to 5G?
Being first at something tends to come with its own set of complications, and there’s no exception for Telstra.
Because while they are currently the only Aussie telco offering 5G, this new wave of mobile technology is only available ‘in select areas’.
In Victoria, for instance, 5G is only available within the CBD, Southbank, and select parts of East Melbourne and Richmond. Areas of coverage are even sparser in Sydney.
Telstra plans to increase the 5G coverage area almost fivefold within the next year, but any unforeseen hurdle could delay these ambitions.
A reasonable customer response would be to hold out on 5G devices until the network is further established. But Telstra have also jumped the gun on this one, offering customers who buy a 5G-enabled device before their new plans roll-out next month ‘5G access for no additional charge for the life of their contract.’
Talk about predicting the market.
It will be interesting to see the reception of these new 5G devices, and whether it creates any dramatic shifts in Telstra’s share price.
Keep an eye on this space for updates.
For Money Morning
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