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Telstra Corporation Ltd focuses on data to drive mobile revenue

In order to keep up with its peers – Singapore Telecommunications’ (ASX: SGT) Optus, and Hutchison Telecommunications’ (ASX: HTA) Vodafone – Telstra Corporation Ltd (ASX: TLS) has introduced a $130 cap on phone calls per month. According to a Telstra spokesperson the limit is a “safety net” to protect customers from nasty charges many of us have likely experienced.

Vodafone and Optus both introduced similar (but cheaper) call caps on their plans in 2013. Telstra’s $130 cap applies to all users who sign up for an Every Day Connect plan but does not include data, which is tipped to be a key driver of growth in coming years.

Since 2010, profits from mobile calls have been dropping rapidly as mobile networks compete with the likes of Microsoft’s Skype, WhatsApp, Apples iMessage, Facebook and Twitter – which allow smart phones users to communicate for free via the internet rather than traditional cellular networks which charge fees by the minute.

Yesterday, Optus’s managing director of networks, Vic McCelland, said downloads from mobile devices are set to peak in two years, despite the total amount of data downloaded to mobile devices nearly doubling between 2012 and 2013. According to analysts, in 2013, revenue from phone calls dropped 19% per minute but was replaced by increased data usage.

The rise in data usage presents a new opportunity for telcos to cash-in on customers’ desire for convenience and lack of understanding of their data plan limits.

Foolish takeaway

Investors have become concerned about the growth in mobile customer numbers as the Australian telecommunications industry passes saturation point. Analysts are divided on the 12-month price of Telstra shares, with UBS placing a target price of $4.20 and Credit Suisse aiming for $5.70. However, a rise in data usage across all telcos and continued dependence upon mobile devices should enable the industry to continue to grow profits well into the future.

Should you buy, sell or hold your Telstra shares?

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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