Daily ShareChat: Telstra

Monday 28th June 2010

Aegies Equities Research analyst Peter Warnes gives his view on Telstra following the announcement that the phone company had entered an agreement to be involved in Australia's broadband roll out.

Australia-based Telstra's A$9 billion ($11 billion) non-binding heads of agreement with NBN Co, the public-private company set up to oversee the construction of Australia's nationwide fibre infrastructure, is positive because it removes some of the uncertainty surrounding the teleco and provides compensation for the gradual wind-down of its old copper network and cable broadband service, says Peter Warnes, an analyst at Aegis Equities Research.

The deal involves moving voice and data traffic to the NBN and allowing NBN to use Telstra's existing infrastructure.

"Under the agreement, Telstra would be a key customer of NBN Co and would be subject to less regulatory interference," Warnes says.

"While there is still more work to be done and the federal opposition continues to oppose the NBN, this deal at least provides a more certain outcome for Telstra shareholders if the NBN does proceed," he says.

While as the incumbent teleco, Telstra suffers from heightened competition and unsympathetic regulators, it has largely completed a strategy to lower its cost base and enhance its product offering, Warnes says.

"Telstra is delivering on its milestones and is continuing to improve customer service levels which should reduce churn and mitigate some of the downside from the gradual decline of the PSTN network," he says.

Recommendation: Add (12-month view); Buy (long-term view).

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