Can 5G help push the Telstra share price higher by 2021?

The Telstra Corporation Ltd (ASX: TLS) share price has dropped significantly since mid-February, falling from $3.89 on 11 February to $3.14 at the time of writing, a decline of 19%.

A number of companies on the S&P/ASX 200 Index (ASX: XJO), have regained a significant proportion of their early phase coronavirus losses since March. However, the Telstra share price saw its downward trend continue until the end of April, falling to $2.99. Since then, Telstra shares have only recovered slightly.

So, can the launch of 5G services drive the Telstra share price higher?

Telstra must go beyond its T22 strategy

Telstra was the undisputed king of the Australian telco market for several decades. It owned the national fixed line network for broadband and voice, and therefore was able to set the price that it charged to other telcos using its network. This flowed through to high margins and high company profits. 

Australia’s National Broadband Network (NBN) has changed all that.

Telstra no longer owns the national network. Australia’s largest telco now operates on a level playing field with other telcos such as Optus, TPG Telecom Ltd (ASX: TPM) and Vocus Group Ltd (ASX: VOC).

In a March market update, Telstra commented that it is on track to achieve most of its T22 strategy goals. This includes reducing underlying fixed costs by $2.5 billion annually by the end of FY22. This strategy will help it evolve into a leaner, more efficient telco provider in a new era of Australian telecommunications.

However, I believe that Telstra must go further than just cost-cutting and restructuring if it is to grow its business over the longer term.

Launching new 5G services is a key way that Telstra can achieve this.

Why 5G could be the game changer for Telstra

By offering wireless mobile broadband via its own 5G network, this will enable Telstra to bypass the NBN.  Telstra will also be able to obtain higher profit margins.

In late May, Telstra reached a significant milestone in its 5G rollout, will 5G coverage switched on in selected areas of 47 cities and larger regional towns across Australia.

Telstra’s 5G network has reached speeds of over 700 Mbps – that’s 7 times the current speed of the 4G network. It’s also faster than the plans nearly of all existing NBN customers. It is also significantly faster than its main 5G rival Optus, which currently only offers maximum speeds of 400 Mb/s.

Can 5G lift the Telstra share price higher?

5G mobile broadband access is unlikely to ever fully replace NBN’s fixed broadband access. However, it could see Telstra potentially expand its mobile subscriber market share over the next few years. This could flow through to higher revenue, higher profitability and potentially a higher share price.

However, with a full 5G launch not expected until later this year or early next year, I don’t anticipate any positive impact on Telstra’s share price until well into 2021.

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Motley Fool contributor Phil Harpur owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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