Telstra Group (ASX: TLS): Dominance Pays

Telstra (ASX: TLS) stands as Australia’s premier telecommunications provider with an exceptional telecom asset foundation and leading market position across mobile and internet services. Beyond being a top customer-oriented service provider, Telstra’s infrastructure assets establish its formidable market stance as it delivers services to enterprises, government entities, private networks, and fellow carriers. Several factors currently highlight Telstra’s favorable position including robust pricing power, subdued competition, and numerous monetizable assets.

About Telstra Group

Telstra (ASX: TLS) is Australia’s most substantial telecom services provider by market share and possesses a diverse array of assets enabling service delivery across a wide spectrum of market segments. Telstra Group operates through three distinct entities – InfraCo Fixed (overseeing fixed-line assets, fiber assets, data centers, etc.), Infraco Mobile/Amplitel (managing mobile assets including towers), and ServeCo (focusing on utilizing these assets to serve Telstra customers). Business segments are categorized as Mobile, Fixed – Consumer/Small Business, Fixed – Enterprise, Fixed- Wholesale, Infraco Fixed, Ampitel, and International (Asia-Pacific and Latin America).

Telstra maintains a market capitalization of A$49.99 billion.

Market Dominance And Asset Portfolio Are Strengths

Telstra’s (ASX: TLS) primary strength lies in its dominance regarding both customer market share and infrastructure. Telstra underwent privatization by the Australian government when it held an overwhelmingly dominant market position, and since then its extensive infrastructure advantages have enabled it to maintain this standing. The company operates the largest inland network exceeding 250000 km, 400000 km of undersea fiber, and more than 8000 towers alongside substantial ancillary infrastructure.

The company’s asset foundation enables it to provide the most comprehensive suite of services for enterprises including communications, dark fiber (private fiber), networking solutions for cloud companies, private wireless networks, and more. Such offerings present significant opportunities as technologies like GenAI at enterprise level, IoT, and autonomous vehicles experience accelerated adoption.

For consumers, Telstra boasts Australia’s largest 5G network with impressive 85% area coverage and the most extensive broadband network for home/SME internet, with this combination providing Telstra a powerful bundling proposition. 

While data demand continues growing rapidly due to increasing digitization, the concentration of fiber asset ownership represents a recurring global pattern as it constitutes a moderate-return yet very high gestation investment alongside intense price competition due to its commodified nature. Consequently, companies like Telstra enjoy sustained dominance. In Australia, even the National Broadband Network (NBN), a government-funded wholesale (B2B) fiber broadband initiative, relies on Telstra’s InfraCo for infrastructure. 

Additionally, Telstra participates in multiple partnerships with satellite internet providers including OneWeb, Starlink, and Viasat, allowing the company to further optimize capacity and bandwidth across its extensive portfolio, an advantage competitors cannot leverage to the same degree.

For example, Telstra’s Intercity Fibre network (70% complete) is transforming IoT adoption in the Pilbara mining region, enabling automated drilling, driverless haul trucks, and renewable energy microgrids. Pilbara-linked contracts now account for 18% of enterprise revenue (up from 12% in 2024), driven by IoT-enabled predictive maintenance and resource optimization. 

The company’s 5G fixed wireless and Starlink satellite partnerships provide redundant connectivity for remote IoT deployments, with 9.1M IoT SIOs (+532K in 1H25) generating AUD 145M revenue. These investments position Telstra to capture Australia’s AUD 1.2B industrial IoT market by 2026.

The combination of Telstra’s market dominance, pricing power derived from its product’s essential nature, and extensive product offerings for all customer types provides Telstra the necessary cash flows to continue making large capital-intensive and long gestation period investments that constitute its core strengths.

Intense Competition and Regulatory Action Are Weaknesses

Australia’s National Broadband Network facilitates competitors’ engagement in price wars when circumstances permit market share acquisition as customer offerings are largely commoditized. While Telstra receives revenue for NBN’s utilization of its infrastructure, its dominant position in downstream markets would result in earnings impact during price wars or new market entrants. However, market consolidation over recent years reduces this threat’s likelihood. 

While Telstra (ASX: TLS) gained 200 bps in mobile market share (43% as of April 2025), regulatory pressures persist. The ACCC’s 2024–2027 fixed-line pricing determination reduced wholesale margins by 150 bps, trimming InfraCo Fixed’s EBITDA by AUD 180M annually.

Notably, Optus’s post-hack recovery efforts have intensified price competition in fixed broadband, though Telstra’s premium network quality limits churn. Regulatory risks remain elevated, with a pending ACCC review of Telstra’s 25% pricing premium over competitors—a premium sustained by infrastructure superiority but vulnerable to populist policy shifts.

Hence, regulatory action remains a concern. Telstra has historically commanded a price premium compared to competitors owing to its previous status as a government monopoly, and these premiums exceed those of incumbents across other international markets.

New Technologies, Mining Modernization and Securitization of Assets Are Opportunities

Telstra (ASX: TLS) faces few major opportunities – IoT, Edge Computing, and AI For Enterprise Clients along with monetization of its telecom infrastructure division.

IoT (Internet of Things) comprises a network of connected devices participating in complex systems with real-time intercommunication. IoT devices have particularly promising prospects as they form the foundation for future technology development. For instance, Australia is undergoing a historic transition toward green energy infrastructure and mining decarbonization, both necessitating billions in expenditure on green energy infrastructure and new electric mining/processing equipment, all requiring high-bandwidth internet connectivity. Addressing this opportunity, Telstra is constructing the Intercity Fiber, connecting all major cities and the Pilbara region (accounting for 33% of Australian exports).

Telstra accelerated its edge computing capabilities through a November 2024 partnership with AWS, deploying 150 localized data centers to reduce latency for mining, healthcare, and manufacturing clients. Early trials with BHP reduced automated drilling system latency by 40%, generating a AUD 120M revenue pipeline. 

The initiative aligns with Telstra’s Intercity Fibre project, which prioritizes routes like Sydney-Canberra and Melbourne-Canberra for hyperscaler and AI industry demand, offering dark fibre and wavelength services. By FY2026, edge computing is projected to contribute AUD 500M annually, leveraging Telstra’s infrastructure to support low-latency applications like real-time mineral analytics in the Pilbara mining region.

The AUD 500M acquisition of CyberShield (March 2025) strengthened Telstra’s managed detection and response (MDR) capabilities, enabling cross-selling to 60% of its enterprise base. Integration secured contracts with three ASX 20 banks, adding AUD 45M in annual recurring revenue. Telstra expanded its Scam Protect and Fraud Indicator products with Commonwealth Bank, blocking millions of malicious calls and texts monthly. 

The CyberShield deal also introduced Device Security Essentials for mobile users, addressing rising enterprise demand for AI-driven threat detection as cyberattacks surged 22% YoY in Australia.

The second opportunity involves unlocking value through monetization of infrastructure arms (InfraCo and Amplitel). 

Telstra’s InfraCo Fixed division, comprising critical fibre and fixed-line infrastructure, has been revalued to AUD 28 billion (up from AUD 22–33B in 2024), driven by surging demand for dark fibre and wavelength services from hyperscalers and AI-driven industries. The division’s recurring EBITDA grew 8.3% YoY in 1H25, supported by inflation-linked contracts with nbn co and enterprise clients.

In parallel, Telstra advanced discussions to securitize AUD 15 billion of NBN cash flows tied to its Infrastructure Services Agreement. This structured financing initiative, expected to close by mid-2025, will monetize long-term, inflation-protected revenue streams to fund expansions into Asian data centers and edge computing partnerships.

This approach could generate serious resources without diluting strategic benefits such as vertical integration currently enjoyed by the company. These cash flows could subsequently fund growth in international telecom infrastructure markets.

Shaky Macros and Inflation Remain Threats

A significant threat for Telstra (ASX: TLS) involves persistent inflation and economic uncertainty. The company’s performance depends entirely on consumer and enterprise prosperity. Should high interest rates or tariff turmoil eventually damage the economy, Telstra could experience a prolonged downturn. 

Persistent inflation also challenges the company by continuously eroding margins while the company remains hesitant to increase prices due to regulatory concerns.

Telstra Financials

In FY2024, Telstra (ASX: TLS) delivered robust financial results, marked by 4.2% year-on-year (YoY) revenue growth to AUD 23.1 billion, driven by strong performance in mobile services (+6.8% to AUD 9.4B) and enterprise solutions (+9.2% to AUD 7.1B). The company’s EBITDA margin expanded by 120 basis points (bps) to 35.2%, translating to AUD 8.1 billion in EBITDA (+6% YoY), underpinned by cost efficiencies from its T25 program, which saved AUD 300 million through automation and AI-driven network optimization.

Net profit after tax (NPAT) rose to AUD 2.2 billion, supported by disciplined cost management and higher-margin enterprise contracts. Net debt declined to AUD 6.9 billion (2.1x EBITDA), comfortably within the target range of 1.5–2.0x, reflecting improved cash flow generation and capital discipline.

The first half of FY2025 (1H25) saw continued growth, with revenue increasing 3.3% YoY to AUD 12.1 billion, led by mobile services (+6.8% to AUD 4.8B) and enterprise solutions (+9.2% to AUD 3.7B). EBITDA grew 7.5% YoY to AUD 4.3 billion, with margins improving to 35.5%, driven by energy efficiency gains (AUD 85M annual savings) and cumulative core fixed cost reductions of AUD 283 million since FY22.

Net profit rose 7.1% to AUD 1.1 billion, while free cash flow surged 54.1% to AUD 1.3 billion, bolstered by working capital reversals and lower restructuring costs. Net debt remained stable at AUD 6.9 billion (1.9x EBITDA), supported by AUD 3.2B in undrawn liquidity facilities.

In February 2025, Telstra announced an on-market share buyback of AUD 750 million, citing confidence in its balance sheet strength and commitment to returning capital to shareholders. The buyback, conducted under the Corporations Act’s “10/12” limit, commenced post-12 March 2025 and aligns with Telstra’s capital management framework, aiming to enhance EPS and dividend growth. This followed a 5.6% increase in the interim dividend to 9.5 cents per share (5.8% yield), supported by AUD 1.1B in free cash flow. The decision reflects Telstra’s reduced leverage (net debt/EBITDA of 1.9x) and focus on “active portfolio management,” including divestments like the AUD 137M sale of Titanium Ventures Fund II and Foxtel’s exit.

Telstra reaffirmed its FY2025 financial guidance, projecting revenue between AUD 24.0 billion and AUD 24.5 billion, representing a 5–7% year-on-year growth. This growth is expected to be driven by continued strength in mobile services, enterprise solutions, and infrastructure investments. EBITDA is forecasted to rise to AUD 8.6–8.8 billion, reflecting a 5.5% increase at the midpoint, underpinned by margin expansion through cost efficiencies and higher revenue contributions from edge computing and cybersecurity initiatives.

Capital expenditure for FY2025 is estimated at AUD 4.1 billion, prioritizing key strategic projects. These include a AUD 1.6 billion investment in the Intercity Fibre project, which is expected to deliver mid-teens internal rates of return (IRR) and provide critical connectivity for hyperscalers and AI-driven enterprises. Additionally, Telstra plans to allocate AUD 800 million over four years for mobile network upgrades, focusing on extending its 5G leadership and integrating advanced technologies like Open RAN-ready hardware and AI-powered network optimization tools.

Telstra’s FY24–1H25 performance underscores its resilience in a competitive landscape, leveraging infrastructure dominance and strategic pivots into high-growth sectors. The AUD 750M buyback and dividend growth signal confidence in sustained cash flow generation, while FY25 guidance reflects disciplined investments in 5G, edge computing, and cybersecurity. With net debt stable and ROIC improving to 8.9% (vs. sector avg. 6.7%), Telstra is positioned to balance shareholder returns with long-term infrastructure bets, albeit amid regulatory and macroeconomic uncertainties.

Telstra Valuation

Comparing Telstra (ASX: TLS) to TPG Telecom (ASX: TPG) and Aussie Broadband (ASX: ABB), both Australian telecom majors and direct Telstra competitors, reveals significant differences. Between these companies, they cover substantial portions of markets where Telstra holds dominance.

As you can see, while Telstra is much better priced than large scale player TPG but a bit more expensive than smaller rival Aussie Broadband. However, it is a much safer investment due to scale and offers a great dividend yield.

Conclusion

Telstra’s (ASX: TLS) robust infrastructure and strategic focus on high-growth sectors like IoT, edge computing, and cybersecurity position it as a resilient leader in Australia’s telecommunications industry. The company’s FY2024–1H25 financial performance reflects disciplined cost management, sustained revenue growth, and shareholder-friendly initiatives such as share buybacks and dividend increases.

While regulatory pressures and macroeconomic headwinds present challenges, Telstra’s ability to monetize its infrastructure assets and expand into international markets offers significant upside potential. By leveraging its unparalleled network capabilities and technological advancements, Telstra is well-equipped to drive long-term value for stakeholders while maintaining its competitive edge in an increasingly digitized economy.