Less haste for more speed Doubt over potency of 5G ‘windfall’

DOUBTS have been raised over the 5G revenue bonanza Australian telcos have been waiting for – as Telstra reels from a market rout which has stripped close to $4 billion from its value.

The nation’s biggest telco has been savaged by investors in the wake of a weak earnings update, with billions wiped from its market capitalisation since the start of the week.

Telstra shares plunged 5 per cent on Tuesday to slip below $3 for the first time since late 2011.

And things could get worse for its mum and dad shareholders with Citi analysts tipping it could again cut its dividend next year.

The head of Chinese technology giant Huawei has cast doubt on a revenue windfall from the fifth generation wireless network, in comments that question future income streams for the entire mobile sector.

Eric Xu last month said while 5G was faster and more reliable than 4G, consumers would find no “material difference between the two technologies” and that “even today we have the technology that can support autonomous driving”.

Telstra has been predicting a revenue boost from the new 5G mobile technology which is supposed to be three times faster than 4G.

In sounding a warning on Telstra’s dividend, Citi analyst David Kaynes said 5G could offer Telstra “cost savings” as it was more efficient than 4G.

But he said Telstra would be forced to pass on savings to the consumer because of high competition with Vodafone, Optus and an incoming TPG.

Mr Kaynes said it no longer made sense for Telstra to pay a 22c dividend after the close of the financial year because of limited scope for revenue growth.

In February, Telstra withheld $500 million from shareholders by cutting its dividend for the first time in 16 years.

Despite more headwinds, Telstra on Monday reaffirmed its dividend for the full year at 22c, fully franked.

The stock is under siege after it revealed that earnings before interest, tax, depreciation and amortisation would come in at the bottom end of its guidance range of $10.1 billion–$10.6 billion. The challenging conditions are expected to continue into the 2019 financial year.

Other telco stocks have been whacked amid a malaise in the sector, with TPG and Vocus both down about 20 per cent since early January.

Telstra’s COO Robyn Denholm told Business Daily the possibilities of 5G went beyond smartphones and would underpin much of the economy: “5G will help deliver the next industrial revolution, unlocking opportunities across industries and markets and we want to ensure Australians are among the first in the world to gain access to it.”

At the telco’s first-half results in February, CEO Andy Penn talked up the impact of 5G and how it could boost revenue.

“When there’s been a new ‘G’, that has been followed by growth in industry revenues as customers have taken advantage of more capacity and more speed,” he said.“It’s not unreasonable to think that will be the case with 5G.”

Telstra shares closed yesterday at $2.86.