Telstra Corporation Ltd's (ASX: TLS) recent transformation away from high-margin fixed infrastructure assets such as its PSTN network has alarmed some shareholders who are sceptical the telco giant can maintain earnings with its new strategy.
However, with payments from the government set to total $11 billion for the sale of the company's network and infrastructure, Telstra will be able to continue leveraging growth in Asia and improve its wireless capabilities. In this Fool's (capital 'F') opinion, the sale of the assets couldn't have been better timed.
The $11 billion, which is being progressively paid to the telco, has allowed the company to expand its mobile network capability and its 4G coverage, which customers are welcoming with higher usage rates. While the government's NBN does pose a threat to Telstra's fixed-line broadband and cable offering – simply because it will be required to compete with rival telcos such as iiNet Limited (ASX: IIN) and TPG Telecom Ltd (ASX: TPM) – it has prepared for the competition by ramping up its customer service and increasing its packaged offers.
By the time the NBN rolls out nationwide there is also a real risk that customers will have adapted to new wireless technologies such as the network Telstra is currently piloting. The new 4G technology is rumoured to be capable of producing speeds up to 450Mbps – far exceeding what's on offer from the Coalition's proposed NBN minimum of 50Mbps.
In addition to its dominant broadband and mobile offering here in Australia, Telstra's Network Applications and Services (NAS) division and expansion into Asia are great growth prospects. In FY13, NAS revenue grew by 17.7% and – more recently – the international division recorded substantial profits from the listing of its Autohome (NYSE: ATHM) business and sale of its Hong Kong mobile assets.
Foolish takeaway
With free cash flow and the number of domestic customers growing, coupled with exciting new growth opportunities overseas, Telstra's business is evolving in an exciting and lucrative manner. In my opinion, long-term shareholders can rest easy knowing their receiving an above average dividend yield and their company is on track to continue to grow earnings.
