Telstra's Rich Valuation Now Has to Reckon With an Outage and a Regulator

A more rational mobile market has fund managers split on price, just as a nationwide outage and an ACCC coverage inquiry raise new questions.

14 Oct 2026 · 4 min read

Telstra has become one of the more contested valuation debates on the ASX, trading near 24 to 25 times earnings for a business growing revenue at only 1 to 2 percent a year, with fund managers roughly split between those who see a genuinely more rational mobile market supporting improving returns and those who think the market has already paid for all the good news, just as a nationwide outage and a fresh regulatory review added new complications.

A genuinely more rational mobile market

Investors Mutual Limited held at a hold in June, saying its long-held thesis is playing out as the mobile market becomes more rational, with rival Optus now earning a profit and heading toward covering its cost of capital, leaving Telstra's near-term earnings pathway looking good for buybacks, growth and dividends, even if the fund is not chasing the stock at 24 times earnings. Plato Investment Management rated it a buy, agreeing the mobile market has turned genuinely rational, with Telstra keeping costs low enough that dividends grew faster than profit as cash flow outpaced accounting earnings.

They're able to increase their dividends by more than their profit in the last year because their cashflow has actually been even stronger than their accounting earnings as a result of that and reduced costs.

— Plato Investment Management, Article, June 2026

By July, Investors Mutual had turned more skeptical, acknowledging prices had risen, costs had been cut and assets sold, improving returns, but arguing that investment case is now mature and reflected in a multiple in the low twenties, punchy for a telecommunications company, and moved to a sell on the view that raising prices and cutting costs is not a sustainable long-term strategy on its own.

The bear case: paying too much for a low-growth defensive

Market Partners held at hold, noting the stock trading a little above $5 would probably be a buy back in the high $4 range, describing a business growing revenue around 1 to 2 percent and earnings at mid-single digits, a genuinely defensive earnings stream but one facing emerging competition from satellite technology. Ten Cap was more direct in rating the stock a sell, arguing that while Telstra is a fine, very defensive business with an acceptable 4 percent yield, paying close to 25 times earnings for a low-growth company is expensive, and that once markets normalise beyond current geopolitical focus, investors will scrutinise that valuation more closely, alongside longer-term threats from Starlink and other satellite technology.

New complications: an outage and a regulatory review

Pendal Group reported a nationwide mobile outage in July that disrupted voice, data and SMS services and, most seriously, prevented some users from reaching Triple Zero emergency services, traced to a malfunctioning timer in two data-centre servers, with Telstra conducting welfare checks on affected customers and facing regulatory investigation. Wilson Asset Management said the bigger question is whether direct-to-mobile satellite technology and potential regulatory change around universal coverage could narrow Telstra's coverage moat and weigh on its pricing power, adding it does not think Telstra is a bad business but wants evidence its pricing power holds before it is comfortable paying the same valuation premium.

We just want to see some evidence of Telstra being able to hold the pricing power and we are a little bit watchful where the market's actually willing to put the same premium.

— Wilson Asset Management, Article, July 2026

In August, Pendal Group reported the Australian Competition and Consumer Commission had opened a twelve-month inquiry into regional mobile coverage and whether it should be regulated as a declared service, noting the last such review a decade earlier found declaration would likely not lower prices or improve regional coverage, though the market has changed since then with TPG and Optus striking a network-sharing deal.

August's result: solid cash flow, but capex eats into guidance

Pendal Group said Telstra's FY26 result and FY27 guidance came in broadly in line with consensus, though capital expenditure guidance was marginally higher, with management announcing a $1 billion buyback that could be increased at the first-half FY27 result. Cash earnings per share grew 14 percent in FY26, but higher capex, likely a short-term response to recent network issues, means FY27 cash EPS growth is now guided at 5 percent, down from a prior expectation of 7 percent. Plato Investment Management called the result a touch soft against expectations, with profit up 5 percent but cash earnings up 14 percent, higher than accounting earnings because Telstra is spending less on capital expenditure than it depreciates, a sign it called positive for the balance sheet even as it disappointed on growth. Paradice Investment Management exited its position after a period of strong outperformance, saying it now prefers supermarkets for a combination of defensiveness and growth. WaveStone Capital took the opposite view in September, rating the stock a buy and expecting Telstra to hold its competitive advantage and pricing power in mobile as its price increases continue to be matched by the rest of the market.

What fund managers say they are watching next is the outcome of the ACCC's twelve-month regional coverage inquiry, the resolution of the outage investigation and any resulting regulatory penalties, whether the slowdown in FY27 cash EPS growth guidance proves temporary as capex normalises, and whether satellite and direct-to-mobile competition genuinely erodes Telstra's coverage advantage over the medium term.