There could be a method to the madness in the Telstra Corporation Ltd (ASX: TLS) share price run that has baffled critics. Our largest telco appears to be winning the mobile market war even in the face of fierce competition.
The TLS share price has rallied more than 13% since January when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up 11%, leading some to question if its outperformance can be sustained given the many challenges the sector is facing.
There may be a reason to think so. Analysis by JP Morgan that's reported in the Australian Financial Review showed that Telstra added 239,000 customers (it's highest growth in six years!) and increased its share of the strategically important post-paid mobile market to nearly 50% in the six months to end December last year.
Winning the mobile battle
That's more than double what analysts were expecting, and Telstra can thank its low-cost brand Belong for the success as that business contributed half of the new accounts.
Post-paid mobile is a key earnings driver for Telstra as customers on such plans typically spend more than those on prepaid plans.
Customers seem to be moving away from pre-paid towards post-paid as the overall market for the latter has increased by 483,000 customers, or 150,000 more than what JP Morgan was expecting.
This should be good news for Telstra's rivals although it's worth nothing that Telstra is wining more than 40% of the new subscribers in 1HFY19.
Meanwhile, prepaid subscribers have fallen with around 282,000 prepaid accounts closed, according to the AFR.
Foolish takeaway
Telstra's rising market share is a rare piece of good news for the embattled telco battling low cost rivals like TPG Telecom Ltd (ASX: TPM), Vocus Group Ltd (ASX: VOC) and Amaysim Australia Ltd (ASX: AYS).
It also won't be enough to return Telstra to the path of earnings growth due to the NBN.
But anyone who has bought Telstra's shares recently aren't buying it for growth. They are buying it on the belief the telco can avoid another big cut in its dividend.
Maintaining its mobile market dominance will help but that's not the only potential piece of good news from Telstra.
There's strong speculation that the federal government (particularly if Labor wins the next election) will write down the value of the NBN – paving the way for the national broadband company to lower wholesale prices and return some profit margin to the telcos.
I think this is a likely outcome that could trigger another round of re-rating for the sector.
