---
endpoint: analytics
pattern: Telecoms
status: done
latency_ms: 170170
conversation_id: e87e06f8-011e-4689-ae44-4b928d5ea4f8
citations: 14
created: 2026-05-31 20:50:22Z
---

# What are the key risks to Telstra’s growth trajectory?

# Key Risks to Telstra's (TLS AU) Growth Trajectory

Drawing on CLSA's most recent internal coverage (Investor Day note, 27-May-2025; TPG/Vodafix note, 7-May-2025) and Telstra's H1 FY26 earnings call (18-Feb-2026), the risks to Telstra's growth trajectory cluster into six themes. CLSA carries a **HOLD** rating with a **A$4.10 TP** (~9% TSR downside), explicitly because these risks are unresolved [6].

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## 1. Intensifying Mobile Competition — Telstra's Earnings Engine Is Now Concentrated and Contestable

Mobile is the dominant earnings driver — Mobile service revenue grew 5.6% in H1 FY26 — and CLSA flags **"increased earnings concentration risk to mobile"** as a key valuation overhang [3]. The downside risk catalogue explicitly cites **"more intense price and product competition in mobile"** alongside technology and regulatory risk [1].

The competitive context has shifted materially:
- **TPG/Optus network-sharing** ("Multi-Operator Core Network") is reshaping the #2 and #3 players. CLSA notes the agreement is "beginning to improve churn and network connections, including post-paid subscriptions… supporting a repositioning of the brand and value proposition to customers from an inferior position… to a highly competitive one" [8]. TPG is now CLSA's preferred telco exposure, not Telstra.
- CLSA is cautious on Telstra's next 12 months given **"Telstra's higher priced products versus peers and risk of increased customer churn in macro downturn, as well as technology risk and product based competition where competitors have begun to share their network operations"** [2].

The H1 FY26 prepaid handheld ARPU growth of 14.7% was flagged by management as largely a one-off flow-through from October 2024 price changes, raising sustainability questions on the headline ARPU narrative.

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## 2. Technology Risk — Software-Defined Networks & LEO Satellite Erosion of the Moat

CLSA's most differentiated risk call is structural: Telstra's network advantage may be **commoditised by software**.

- **"We believe increasing adoption of software defined networks to manage telecom networks programmatically may ultimately reduce the relative importance of existing ground infrastructure and gives competition a more equal opportunity at low cost"** [4 — referenced in valuation methodology under risk premium].
- CLSA sees **"risks with increasing reliance on 3rd party software positioned as the customer interface"** and notes Telstra's A$800m mobile capex to extend its network lead could collide with **"operators with greater software buying scale,"** reducing the importance of physical infrastructure [4].
- Downside risks explicitly include **"technology risk from LEO satellite or network modernisation and increased reliance on software layer globally"** [1].

This challenges the bull-case logic that Telstra's superior 5G network is a durable moat — and translates directly into CLSA's higher WACC assumption (6.8%) **"reflecting competition and technology risks on the horizon"** [3].

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## 3. Differentiation Risk in "Core Connectivity" / Network-as-a-Product Strategy

Telstra's Connected Future 30 strategy reframes the network itself as a product. CLSA is skeptical:

- **"We believe TLS's ability to differentiate its 'core connectivity' offering remains a significant risk to TLS achieving 2030 ROIC targets"** [6].
- The partnership with Aduna — held up by management as a key new B2B2X channel — **"is not exclusive and both Singtel and Vodafone (major TPG telecom shareholder) are parties to the agreement, meaning it is hard for us to see meaningful opportunities for Telstra to differentiate"** [5].

In short: the new monetisation channels Telstra is highlighting are open to competitors too.

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## 4. Spectrum Renewal Cost Inflation (ACMA)

A material near-term overhang. The ACMA spectrum renewal process running 2028–2032 covers **~80% of the spectrum Australian mobile networks rely on**. CEO Vicki Brady disclosed that under the regulator's proposed pricing, Telstra estimates **"it would be, we believe, about $1.3 billion, more than what we would see fair market price"** [12]. Management explicitly warned that this additional cost creates **"a balance of how much we invest into the network and the products and services we're delivering for customers"** [12] — i.e. it pressures either capex, dividends, or end-customer pricing.

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## 5. Legacy Product Decay — Fixed Enterprise, NAS, Voice, International

Multiple legacy lines are in structural decline, masking the mobile story:

- **Data & Connectivity (DAC) income fell 9% in H1 FY26**; product refresh / upsell to higher bandwidth was insufficient to offset service rationalisation and customer credits. DAC EBITDA declined to just $25m [9].
- **NAS revenue declined 4%**; Telstra is actively divesting (Alliance Automation, MTData closed; Versant Group 75% sale pending). These divested businesses contributed $235m of H1 FY26 revenue that will not recur [9].
- **International wholesale & enterprise EBITDA is expected to decrease significantly in 2H** with one-off items not repeating, plus declines in NAS and voice [9].
- **Digicel Pacific EBITDA declined 22% to $139 million** vs prior period due to absence of earnout provision releases; underlying constant-currency growth was only 1.7% in **"a challenging operating environment"** [13].
- CLSA's downside risk list includes **"greater-than-expected deterioration in legacy products"** [1].

There is also residual operational risk from the digital stack migration — Telstra is still working through **"around 4,000 of our customers who are the most complex to migrate"** [14], and historical sales-practice remediation costs continue to pressure mobile profitability into FY26 [11].

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## 6. Fixed Consumer (NBN) Margin & SOI Headwinds — Plus TPG-Sector Risk

In H1 FY26 management acknowledged **"SOI [services-on-internet] losses remain a challenge and a focus for our channel and marketing teams"** [10]. Telstra has launched Internet-Only plans and the Smart Modem 4 to stabilise share, but the structural nbn margin squeeze persists. CLSA's sector-level risk framework (in the TPG note) lists **"worse-than-expected margin headwinds from NBN; share losses in the corporate data and IP market; greater-than-expected deterioration in corporate voice services"** as the principal investment risks across Australian telcos [7] — Telstra is exposed to all three.

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## 7. Capital Allocation & Capex Cycle Risk

- Management confirmed **higher BAU CapEx is expected in 2H FY26** (international digital infrastructure spend phasing in), reversing the lower-capex tailwind that helped H1's 14% Cash EBIT growth [11].
- Aura Network (intercity fibre) is at the halfway mark with **~$1.6bn above BAU CapEx** still to spend; CLSA notes **"a DCF faces inherent challenges in accurately predicting mobile spectrum auction costs and technology risk which may impact the accuracy of our base-case projections"** [3].
- CLSA's downside risk list explicitly cites **"high cost growth and significant increase in capex"** [1].

---

## Summary Risk Matrix

| # | Risk | Severity | Source |
|---|------|----------|--------|
| 1 | Mobile competition (TPG-Optus MOCN) eroding ARPU/share | High — earnings concentration | CLSA HLD note [1][2][8] |
| 2 | SDN / LEO / software-layer commoditisation of network moat | High — structural | CLSA [1][4] |
| 3 | Differentiation failure in "core connectivity" 2030 strategy | High — ROIC target risk | CLSA [5][6] |
| 4 | ACMA spectrum renewal — ~A$1.3bn above "fair value" | Medium-High | Earnings call [12] |
| 5 | Legacy decay (DAC -9%, NAS -4%, voice, Digicel -22%) | Medium — ongoing | Earnings call [9][13][14] |
| 6 | NBN margin compression + Fixed Consumer SOI losses | Medium | CLSA [7]; earnings call [10] |
| 7 | Capex re-acceleration in 2H + Aura execution | Medium | Earnings call [11]; CLSA [3] |

CLSA's bottom line: **"significant self-healing required to achieve 2030 goal"** — the company maintains its HLD rating with A$4.10 TP because these risks dominate the differentiation narrative [6].

---

**Sources**
[1] Telstra — HLD (Dreamtime journey) — CLSA (27 May 2025) — 607960654LinqAlpha.PDF (Investment risks chunk)
[2] Telstra — HLD (Dreamtime journey) — CLSA (27 May 2025) — Investment thesis
[3] Telstra — HLD (Dreamtime journey) — CLSA (27 May 2025) — Valuation / WACC discussion
[4] Telstra — HLD (Dreamtime journey) — CLSA (27 May 2025) — Investor Day highlights: Dynamically managed networks
[5] Telstra — HLD (Dreamtime journey) — CLSA (27 May 2025) — Aduna not exclusive
[6] Telstra — HLD (Dreamtime journey) — CLSA (27 May 2025) — "Significant self-healing required" / 2030 goal
[7] TPG — O-PF (Vodafix) — CLSA (7 May 2025) — 607958214LinqAlpha.PDF — Investment risks (telecom sector)
[8] TPG — O-PF (Vodafix) — CLSA (7 May 2025) — AGM update on Optus network-sharing repositioning
[9] Telstra Group Ltd., Q2 2026 Earnings Call (18 Feb 2026) — DAC / NAS / divestments
[10] Telstra Q2 2026 Earnings Call — Fixed C&SB SOI commentary
[11] Telstra Q2 2026 Earnings Call — Mobile cost increases / remediation / capex phasing
[12] Telstra Q2 2026 Earnings Call — ACMA spectrum renewal commentary
[13] Telstra Q2 2026 Earnings Call — Digicel Pacific EBITDA
[14] Telstra Q2 2026 Earnings Call — Complex customer migration tail

## Citations

- [1] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [2] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [3] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [4] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [5] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [6] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [7] **607958214LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607958214LinqAlpha.PDF>
- [8] **607958214LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607958214LinqAlpha.PDF>
- [9] **Telstra Group Ltd., Q2 2026 Earnings Call, 18-February-2026 5** · external
- [10] **Telstra Group Ltd., Q2 2026 Earnings Call, 18-February-2026 5** · external
- [11] **Telstra Group Ltd., Q2 2026 Earnings Call, 18-February-2026 5** · external
- [12] **Telstra Group Ltd., Q2 2026 Earnings Call, 18-February-2026 5** · external
- [13] **Telstra Group Ltd., Q2 2026 Earnings Call, 18-February-2026 5** · external
- [14] **Telstra Group Ltd., Q2 2026 Earnings Call, 18-February-2026 5** · external

