The Telstra Corporation Ltd (ASX: TLS) share price is pushing higher after the release of an announcement this morning.
At the time of writing the telco giant's shares are up 0.5% to $3.08.
What did Telstra announce?
This morning Telstra announced that it expects to make a non-cash impairment and write down of the carrying value of its 35% stake in the Foxtel business.
This follows the decision by News Corp (ASX: NWS) to write down the value of its stake in the pay television company.
According to the release, Telstra expects to recognise an impairment charge of approximately $300 million against this investment in its FY 2020 results in August.
This impairment charge will write down the value of its share in Foxtel from $750 million to approximately $450 million. Though, the final outcome of the impairment is subject to a board review and approval of the FY 2020 results.
Why is Foxtel being written down?
News Corp and Telstra have decided to write down the value of the Foxtel business due to industry disruption from streaming companies such as Netflix and due to the impacts of the coronavirus pandemic.
Telstra's CEO, Andrew Penn, explained: "Foxtel has been facing industry disruption for several years and the COVID pandemic is obviously having an impact as global sports are put on hold, pubs are temporarily closed, and advertisers are forced to carefully reconsider their investments."
"Following News Corp's decision to reassess the carrying value of Foxtel, Telstra is likely to make a noncash adjustment consistent with this valuation at our annual results announcement in August," Mr Penn said.
The chief executive remains positive on Foxtel's future, though.
He notes: "We know that sport will return, and through premium content such as the multi-year deal just signed with WarnerMedia including exclusive HBO and Warner Bros. content, Foxtel's offerings will continue to be highly attractive entertainment options."
What impact will this have on its FY 2020 result?
The good news is that this is a non-cash impairment charge and will not have any impact on its FY 2020 results on a guidance basis.
And judging by the fact that Telstra has not updated its guidance with this announcement, it appears to still be on course to deliver on it.
It expects underlying EBITDA in the range of $7.4 billion to $7.9 billion and free cash flow after operating lease payments of $3.3 billion to $3.8 billion.
In light of the latter, Telstra's fully franked 16 cents per share full year dividend looks sustainable to me. Though, there's always a chance the company will want to be prudent and cut it slightly.
