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Telstra spending to protect top spot

AAP logoAAP 16/11/2016 Lilly Vitorovich

Telstra is hoping an additional $3 billion investment in networks and customer service will protect its position as a premium carrier in the face of rising competition.

The telco has pleased investors after committing to $1 billion in cost savings over five years and signalling it will maintain its focus on dividends and shareholder returns.

Following its pledge in August to spend an extra $3 billion on its networks over three years, Telstra on Thursday gave more details of the planned spending, with $1.5 billion allocated to building networks, $1 billion for accelerating digitisation and automation in the business and $500 million on customer-related improvements.

"Network traffic over our fixed and mobile networks will grow five times over the next five years and the capacity to support this level of traffic growth is not yet built," chief executive Andrew Penn said at Telstra's investor day update.

"The changes to our strategy are not major, however they are an important signal to shareholders, employees and our customers that we will be relentless in delivering customer experience improvements and disciplined in how we invest in our networks, services, and growth businesses."

Telstra expects the $3 billion investment to deliver earnings benefits of more than $500 million annually by 2020-21, with about two thirds of that gain from additional revenue and the reminder from cost savings.

Chief financial officer Warwick Bray said the revenue benefits would flow from higher average revenue per user and customer retention.

Foad Fadaghi, principal analyst at research firm Telsyte, said Telstra's vision for 2020 was on the right path to maintaining "network superiority" but said questions remain around how the company will maintain profit margins and drive growth in the interim.

Telstra is targeting $1 billion-plus in cost savings over the next five years and will review its capital allocation strategy over the next six to 12 months to make best use of its payment stream from the national broadbank network.

Telstra is under pressure to fill a $2 billion to $3 billion earnings hole it faces once the rollout of the NBN is completed in 2020, with a resultant drop in wholesale access income from the copper network and an end to NBN compensation payments .

The review will also look at acquisitions criteria and and shareholder returns.

Telstra also reaffirmed its guidance to deliver low-to-mid single digit earnings growth for the year ending June 30, 2017, and free cashflow of between $3.5 billion and $4 million.

Telstra shares closed up 12 cents at $4.84.

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