Telstra Corporation Ltd (ASX: TLS) is rock-solid long-term dividend stock.
Gone are the days when its debt levels were mounting high, it's exposure to struggling businesses like Sensis weighed on earnings and customers loathed going into a store.
Indeed, between the time the government offered its shares to the public (1997) and 2010, it appeared everything was going wrong for Telstra, as its share price plunged from above $8 to just $2.61.
However, since 2010, prophetic investors who saw an opportunity in Telstra haven't looked back.
Under former CEO, David Thodey, Telstra's reputation was repaired, its underperforming businesses were partially or fully divested, and it successfully negotiated an extremely lucrative deal with the government's NBN Co.
Mobiles, by far Telstra's most profitable business line, increased its total subscriber count from 12.2 million in 2011 to 16.7 million in 2015.
Importantly, Telstra didn't pursue a 'growth at any cost' type strategy. Mobile profit margins remain a healthy 40% – in line with the overall group.
What competition risk?
However, following on from its extremely lucrative agreement with the NBN Co in exchange for its 100-year-old copper cable network, some investors have opined that Telstra will face unprecedented competition risk.
They say, Telstra will lose its lucrative right to charge wholesale access rates to retailers like TPG Telecom Ltd (ASX: TPM), M2 Group Ltd (ASX: MTU) (the owner of Dodo and Primus) and iiNet.
However, there are two vital things investors should remember:
- A 2014 CommsDay report found Telstra could be expected to receive a combined $98 billion in infrastructure leases and other fees from the deal. In present value terms, it was previously estimated Telstra stood to receive the equivalent of $11 billion.
- Telstra is still the market leader in telecommunications, by a long shot.
In fact, today, Fairfax Press reported that Telstra's latest wireless hot spot mobile products would be capable of delivering speeds up to six times faster than the NBN Co's fibre-to-the-node network.
Of course, cable networks like the NBN Co's are more capable of delivering large quantities of data at a cheaper price, but it shows Telstra's divestment of the copper cables and the investment in wireless technology could prove to be very well timed.
Telstra says the product, named Wi-Fi 4GX Advanced III, will be launched at the end of this month. By comparison, the NBN is likely still many years away from being available in all residential areas throughout Australia.
Buy, Hold or Sell
Telstra's transformation from a legacy infrastructure business to a nimbler technology and communications company is continuing, but in my opinion it is nothing to fear.
Cash from the NBN Co deal will continue to bolster Telstra's future cash flows and enable it to invest in new and exciting technology both locally and aboard as part of its Asian strategy.
I've previously said that if investors get the opportunity to buy Telstra shares at $5, it'd be an opportunity to buy one of the ASX's best ultra-long-term businesses at a price too good to pass up.
