Chart: The 5 ways Telstra Corporation Ltd makes money

Credit: Telstra

Telstra Corporation Ltd (ASX: TLS) is one of the most established companies around, lording over the telecommunications industry with around 41% of the country’s mobile users.

But that’s not the only way Telstra makes money. Telstra’s revenues actually fall into five categories.

Here is a quick summary to help you understand what drives the company and where risks may lie going forward.

Source: compiled from Telstra FY16 results

Source: compiled from Telstra FY16 results

Telstra Retail (62%)

The retail segment is the engine at the core of the Telstra machine. It represents the parts that probably first come to mind when you think of the company. For example the Telstra shops; some of which are licensed out, mobile phone services and mobile broadband for individual customers and businesses.

Telstra’s ‘Pay TV’ component and Foxtel joint venture are also included in ‘Retail’ and are often bundled up with other products.

The significance of Retail to Telstra’s total revenues, and the rapid pace of change in technology means competition from smaller, more nimble providers like Optus or TPG Telecom Ltd (ASX: TPM) is a potential risk here. Telstra aims to keep ahead of this by investing significantly in its products to keep ahead of the curve.

Global Enterprise and Services (GES) (23%)

This is where Telstra’s revenues get a bit murkier. The GES division includes work on technical aspects of the business as well as managing Telstra’s networks outside Australia and Internet networks. It’s an area that has been growing strongly for Telstra. With the help of acquisitions the division grew revenues 11.5% in FY16.

Telstra Wholesale (10%)

The Wholesale department sells other companies access to the Telstra network as well as working on the migration to NBN. Once NBN is completed, Telstra expects total EBITDA (earnings before interest, tax, depreciation and amortization) to fall by $2-$3 billion per year.

Telstra Operations (2%)

‘Operations’ is integral to the keeping the big Telstra engine running, so revenue generation has less relevance. The division provides support for the Retail, Global and Wholesale divisions – like planning, designing and constructing networks and hardware.

All Other (3%)

Telstra’s remaining assortment of business ventures falls into the ‘other category’.

Foolish takeaway

Telstra is supported by a significant existing network which offers a significant competitive advantage to support the dominance of ‘Retail’ revenues.

However this is also where the big risks of competition and evolving technology emerge. It is an area investors should keep an eye on given the mature market and the tendency for this to result in price competition.

Big, Fat, Dividends

This company's dividend is almost the stuff of legends. Its reliable cash flows support a high payout ratio, and the company's stash of franking credits are the cherry on the top of the dividend cake. Based on the last 12-months of dividends, shares are offering a fully-franked 6.5% yield, which grosses up to a whopping 9.3%, when those franking credits are included.

Discover out the name of this blue chip share along with 2 others in our new FREE report "The Motley Fool's Top 3 Blue Chips Stocks For 2017."

Click here to receive your copy.

Motley Fool contributor Regan Pearson has no position in any stocks mentioned. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.