The Telstra Corporation Ltd (ASX: TLS) share price could fall another 25% according to Andrew Lewandowski from Newgate Capital Partners, he published his thoughts on Livewire.
Ever since Telstra listed as a monopolistic-like business two decades ago it has come under continued pressure from competition and technological change.
The NBN may be affecting Telstra's broadband profits but it's the mobile segment that the market could be overestimating how much less it could be earning in the future according to Mr Lewandowski.
He said that Telstra's mobile earnings, which accounts for around 50% of Telstra's operating profit, is now declining. Telstra has around half of the Australian mobile market share.
According to analysis done, Telstra's mobile prices are around 30% above Optus'. This high price leaves Telstra in danger to current players like Optus, Vodafone, Aldi and Amaysim Australia Ltd (ASX: AYS). TPG Telecom Ltd (ASX: TPM) will also soon be entering this burgeoning mobile battle.
The regular Telstra mobile outages and Optus upgrades now mean the two are seen as having a similar network quality.
Telstra recently announced that it would be coming out with new, lower-costing mobile plans to win market share back.
The bottom line
Newgate's analysis sees Telstra cutting its mobile prices by 20% over the next three years, which will lead to a 30% decline in core free cashflow, which includes the cost cutting exercise Telstra is doing.
Core free cashflow would fall from 20 cents to 14 cents and that could cause the dividend to be cut to 14 cents, from the already-reduced 22 cents per share. Mr Lewandowski surmised that if Telstra trades on a 6% fully franked yield then it would trade at around $2, representing a fall of around 25%.
Foolish takeaway
This would be some decline if all of the predictions eventuate. Obviously Telstra is betting big that 5G will turn into a big profit creator and that telcos can capture more of the value being created by technology.
Woolworths Group Ltd (ASX: WOW) has proven that cutting prices can win back customers, which then improves margins. However, I am avoiding Telstra for the long-term until I can see it is able to generate sustainable long-term profit growth.
