Is Telstra Corporation Ltd about to hit a brick wall?

Yesterday, Telstra Corporation Ltd (ASX: TLS) warned investors and shareholders that its mobile subscriber growth will slow in the second half of this financial year, which could see earnings growth drop.

Rivals Optus – owned by Singapore Telecommunications Ltd  (ASX: SGT) and Vodafone – half-owned by Hutchison Telecommunications (AUS) (ASX: HTA) are reported to be picking up their game, after both reported losing subscribers in the last quarter.

Warwick Bray, Telstra’s executive director of mobile products said, “The facts are that the market for subscribers has slowed. A lot of people who want a mobile phone already have one, but there is more growth to come.”

Telstra’s mobile division has seen soaring revenues over the past few years, more than offsetting the falls from its fixed line business. Mobile division revenues represented 39% of the group’s total revenues in the first half of this financial year.

Much of that growth has been from adding subscribers – mostly at the expense of Optus and Vodafone. Telstra now has 15.8 million mobile subscribers, compared with 9.4 million for Optus and 5 million for Vodafone. Just four years ago, Telstra had 10.6 million post and pre-paid mobile subscribers. By comparison, Optus had 8.5 million mobile customers, and Vodafone had 7.4 million. The chart below shows their respective performance.

Telstra Optus Vodafone

Source: Company Reports

The total subscriber base has grown 14%, but Telstra has grown its subscribers by a whopping 49% in just four years.

Telstra now believes the mobile phone market is fairly saturated – and is looking for growth from tablets and machine-to-machine, which involves smart sensors in hundreds if not thousands of devices using the internet.

Should that growth not materialise, this could be a better bet than Telstra

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Motley Fool writer/analyst Mike King owns shares in Telstra Corporation. You can follow Mike on Twitter @TMFKinga

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