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Has Telstra lost its growth path?

In The Australian Financial Review today, Telstra Corporation Ltd’s (ASX: TLS) CEO David Thodey forecast mobile subscriber growth to slow. So should you sell your shares?

I think not.

Although Telstra’s mobiles business contributes a massive amount (around 39%) of revenues to the group, it’s been known for quite some time subscriber growth would diminish once the Australian market passed saturation point. Many analysts said mobile growth would peak around 2011-2012.

However, no one expected Vodafone – part-owned by Hutchison Telecommunications Australia (ASX: HTA) – to lose as many customers as it did in the past three years. While Singapore Telecommunications’ (ASX: SGT) Optus held its ground, it appeared every customer who left Vodafone migrated to Telstra.

So although Mr Thodey told AFR he remains “optimistic” about growth, but “wouldn’t expect the same sort of level”, shareholders shouldn’t be concerned.

The competition cited by many analysts as the catalyst for the slowdown in mobile growth is merely Vodafone and, to an extent, Optus trying to revitalise their brands. With a mobile subscriber base of 15.8 million, Telstra clearly has the lion’s share of the market. Optus’ figure stands at 9.43 million whilst Vodafone has five-million mobile customers.

Does Telstra have its back up against the wall?

Telstra is a bigger organisation than perhaps many investors give it credit for. Sensis, Foxtel, fixed line, home phone, fixed data and mobiles make up around 71% of revenues for the telco giant. Outside of these well-known business units the International and Network Application Services divisions continue to grow exceptionally, thanks to Telstra positioning them for the next round of technology growth.

Cloud computing, managed network services, unified communications, Asia and innovative technology offerings such as Autohome.com.cn will experience rapid growth over the next decade. Mr Thodey also acknowledged “wearables” as a key market for mobile growth. Wearables are emerging technologies which have the same functionality as the smart phones we use today, but we will wear them as garments of clothing, watches, glasses or smaller objects such as rings and wrist bands. These all need internet connections to function correctly.

Foolish takeaway

Like any sector, in technology/telecommunications, businesses need to be dynamic and respond to innovation. Here in Australia rapid mobile growth is now behind us and the fastest growing companies over the next decade won’t be selling phones. However, regardless of the physical appearance of technology, future applications will still need internet connections similar to what we use today and, in my opinion, Telstra is the safest way for many Australians to invest in the next wave of technology growth.

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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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