Across client accounts that have selected the “Blend” Australian Equity option we have bought Telstra (TLS), a full service domestic and international telecommunications provider. This purchase has been funded from the complete sale of Myer (MYR) as previously communicated.

We are positive on the medium-term outlook for Telstra for the following reasons:

• Continued net subscriber growth in mobile, low churn and revenue supported by increased data usage;
• Strong fixed broadband net subscriber growth with bundled content/entertainment offers a key advantage;
• A very attractive and sustainable dividend yield;
• Significant capital allocation flexibility with accelerating NBN payments;
• Operational leverage and expanding margins in the growing network application services business; and
• A superior network and brand that provides better defence against a 4th mobile operator than other incumbents.

The major risks facing Telstra are the imposition of regulated wholesale roaming as it will remove Telstra’s current mobile network advantage, and increased competition in fixed broadband as the NBN rollout accelerates, placing pressure on this high margin business. Telstra does also face substantial costs in terms of ongoing reinvestment in existing products and spend on new ventures to sustain future growth.