Telstra Corporation Ltd not just a retail telco anymore

Source: Telstra presentation

Telstra Corporation Ltd (ASX: TLS) is known by many as Australia’s largest retail telecommunications provider, offering mobile services, home phone and broadband connections, but its other businesses are growing much faster.

Given the telco’s dominance of the retail mobile market with 16.9 million customer services and 3.3 million fixed data services, it’s surprising that the telco can continue to keep adding new users – but it did in the six months to end of December 2015.

Retail customers

Another 235,000 domestic retail mobile services were added, another 121,000 retail fixed broadband subscribers and 163,000 retail fixed bundle customers. 500,000 customers have also registered with Telstra Air – the telco’s nationwide Wi-Fi network, including 120,000 mobile customers. Telstra also has 329,000 NBN connections.

Given the number of retail customers, it’s probably no surprise that Telstra’s Retail division delivers ~61% of revenues – but that also includes small-to-medium business customers. Splitting out consumer revenues now shows that Telstra makes the lion’s share (~56%) of its revenues from larger businesses, governments, wholesale services and offshore, with the remainder from consumers.

However, Retail still generates 86% of underlying earnings before interest, tax, depreciation and amortisation (EBITDA), as a number of these businesses are still loss-making at an EBITDA level – but progress is being made.

Non-consumer businesses

Global Enterprise and Services (GES) now delivers 22% of revenues and grew by 21.2% in the last six months to generate $3.2 billion of revenues. GES represents sales and contract management support for businesses and government customers in Australia and globally. It provides data and IP networks, and Network Application Services (NAS) products such as managed networks, unified communications, cloud, industry solutions and integrated services.

The recent acquisition of Pacnet and strong growth in NAS and international GES customers all contributed to the strong growth.

Telstra operating segments Fy16

Source: Telstra Half year financial report

But the strongest growing business segment was “All Other” – which saw revenues soar by 63% to $797 million in the first half of the 2016 financial year compared to the previous year. ‘All Other’ includes Telstra Ventures Group, International and New Business, Telstra Health & Media & Marketing and Telstra’s 54.3% stake in Autohome (China’s car classifieds website).

Autohome, in particular, is growing strongly – with revenues soaring 54% in local currency (82% in Australian dollars).

Foolish takeaway

It would be a mistake to equate the success and future growth of Telstra with its retail offerings of mobile and broadband. This is a company that has a number of growth drivers coming along very nicely – and one reason why I remain a happy shareholder in Telstra. And let’s not not forget those juicy fully franked dividends.

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

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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