Winners and Losers in the Telecom War

SYDNEY -- Telstra Corporation (ASX: TLS.AX) has hit back at claims that its dominant position in retail telecommunications is stifling competition, according to a report in today's Australian Financial Review.

Vodafone Hutchison Australia boss Bill Morrow has called for more stringent scrutiny of Telstra, describing it as the most vertically integrated telecom in the world and warning that its domination in both fixed-line and mobile telecoms and its 50% stake in Foxtel could entrench serious imbalances.

In response, Telstra said competition had forced the company to invest heavily in its mobile network and improve customer service, and it accused Vodafone of seeking protection, rather than regulation.

Telstra's market share has risen dramatically in mobile services, with 958,000 new customers in the six months to December 2011. CBA analysts estimate that Telstra has a 46% share of mobile customers, leaving 32% for Optus -- owned by Singapore Telecommunications (ASX: SGT.AX) -- and 23% for Vodafone.

Expect more complaints from the junior telecoms in the near future, as many fear that Telstra's dominance of the market could expand under the National Broadband Network.

Just last week, Telstra increased landline fees as it tries to make as much revenue as it can from its copper network before the NBN replaces it. Customers are either opting to use mobiles or reducing their fixed-line use. The company still has to support the copper network, so it has to increase fees to cover the cost of maintaining it.

This is slightly off-topic, but if you still use an older mobile phone and have signed up with Telstra, you should know that the company plans to turn off its 3G network at the end of August, and users will be forced to upgrade their handsets or use the much older and slower 2G network. Telstra's Next G network operates on both 3G and 4G, but a small percentage of older mobile phones (pre-2007) are incompatible with the service.

Despite the increasing friction between the telecoms, many of them outperformed the market in July: Melbourne IT (ASX: MLB.AX) climbed 7.3%; TPG Telecom (ASX: TPM.AX) was the best performer, shooting up 15.2%; Telstra added 8.9%; and Telecom NZ (ASX: TEL.AX) posted an 8.2% rise, compared with the S&P/ASX 200 Index rise of around 5.8%.

The Foolish bottom line
With several of the telecoms paying dividend yields of more than 5%, it could be a sector to watch, offering potential growth and decent dividends.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool owns shares of Standard Chartered. The Motley Fool has a disclosure policy. 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's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, while it's still available. This article contains general investment advice only (under AFSL 400691). Authorized by Bruce Jackson.


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