The T25 Strategy Delivers on Its Promise
Under the leadership of CEO Vicki Brady and her team, Telstra has undergone one of its most significant transformations in two decades, successfully delivering on the T25 strategy. Their efforts have reshaped the company from a complex enterprise into a focused, high-performing telecommunications leader.
The success is clear in the FY25 full-year results. Telstra posted a 31% rise in net profit to $2.34 billion, driven by strong mobile earnings and disciplined cost control. The company's EBITDA rose to $8.6 billion, validating its strategic shift toward core connectivity.
This transformation, guided by the T25 and the new Connected Future 30 plans, has simplified the business and made it more efficient with capital and its allocation. Despite rising costs, Telstra's market value has increased by $10.2 billion (+22.5%) since 2022. The company is now positioned for growth.
Vicky's leadership and her executive team’s strong performance have made Telstra a stable, innovative leader, with many considering them the best team the company has had in two decades.
Telstra's Market Cap Progression
FY25 Results Analysis
1. Segment Performance
1.1 Mobile Dominance Continues: Mobile's total revenue across all the segments (CS&B, Ent, Intl) rose 3% to $11 billion, and EBITDA climbed to ~5% to ~$5.3 billion, maintaining the position as Telstra's earnings engine.
- With Mobile continuing to account for the majority of group EBITDA and maintaining margins around 48%, this segment validates Telstra's strategic focus. The average revenue per user (ARPU) grew 2.1% year on year to $43.71, even with a product mix shift to lower-end, demonstrating pricing power and operational efficiency.
1.2 Fixed Line Turnaround Accelerates: Resurrection of the fixed-line units is continuing, with their aggregate fiscal 2025 EBITDA up 41% to $684 million (Morningstar).
- The turnaround in fixed-line performance is one of the most significant in the industry. By shedding peripheral offerings and resetting the cost base, the segment has improved its EBITDA margins to 8.5% in fiscal 2025, up from 5.9% a year ago, with further improvements expected. This transformation demonstrates management's strong execution capabilities.
1.3 InfraCo Performance Validates Structural Separation: The infrastructure division continued its strong performance, benefiting from the structural separation strategy that allows focused operational management and capital allocation.
InfraCo's consistent performance supports Telstra's long-term strategy of monetising infrastructure assets while maintaining operational control. This model has proven successful globally and positions Telstra to capture value from Australia's digital infrastructure needs.
2. EBITDA Growth and Profitability: Sustainable Performance
2.1 Earnings Growth: EBITDA rose 4.6% to hit $8.6 billion, representing solid growth across the transformed business portfolio.
- The EBITDA growth of 4.6% exceeds Telstra's long-term average and demonstrates that the T25 transformation has created a more efficient operating model. This growth was achieved while managing significant operational changes, including network upgrades and technology transitions.
- The 4.6% overall EBITDA growth is a weighted average across segments, heavily influenced by mobile’s ~5% rise and fixed-line turnarounds (C&S/B and Enterprise), implying growth is not uniform.
2.2 Enhanced Capital Efficiency: The company's return on invested capital continues to improve, reflecting disciplined capital allocation and focus on high-return investments.
3. Cash Flow and Debt Position: Financial Flexibility
3.1 Strong Free Cash Flow Generation: The company generated robust free cash flows supporting both shareholder returns and strategic investments.
- Strong cash generation provides flexibility to manage economic cycles, invest in growth opportunities, and maintain shareholder returns. Few global telecommunications companies match Telstra's combination of cash flow yield and financial stability.
3.2 Conservative Debt Management: Telstra maintained its disciplined approach to leverage, keeping debt levels well within rating agencies like Fitch's guidance (net debt between ~1.75 - 2.25 xEBITDA).
- Conservative financial management provides strategic flexibility and helps it maintain a high credit rating. This financial strength differentiates Telstra from its international peers, which face balance sheet challenges.
4. Capital Allocation: Balanced Approach to Growth
4.1 Strategic Investment in High-Return Areas: Capital allocation continues to prioritise mobile network enhancement and infrastructure development, focusing on areas with clear returns on investment.
- Telstra's decision to invest only in its core strengths has paid off. It helps them maintain their competitive advantages while avoiding the diversification approach of the past. This focus has been proven successful by the company's strong financial results.
5. Dividend Strategy: Foundation for Income Investors
5.1 Sustainable Growth Framework: Dividend increase by 5.6% to 19c is supported by improved cash flow conversion and earnings sustainability (~4% dividend yield).
- The shift to sustainable dividend growth, after years of cuts and uncertainty, represents a fundamental change in Telstra's investment proposition. Income-focused investors can now rely on predictable returns backed by operational performance.
5.2 Cash Flow Coverage Improvement: Dividend coverage based on free cash flow has strengthened significantly, providing confidence in payment sustainability.
- Strong cash flow makes the company's dividend payments sustainable, even in tough times. This addresses previous concerns about dividend security that used to be a drag on the stock price.
Consistent dividend growth signals management's confidence in the business model and provides income-focused investors with predictable returns. The dividend policy reflects the transformation from a capital-intensive growth phase to a cash-generative mature operation.
5.3 Share Buyback Program Expanded: The company announced a $1bn buy-back, demonstrating strong balance sheet management and commitment to returning excess capital to shareholders.
- The large buyback program indicates that management believes the current share price undervalues the transformed business. This, combined with dividend payments, offers a strong total return for shareholders.
6. Asset Monetisation: Simplified Business Model
6.1 Non-Core Asset Divestment Completed: The completion of various asset sales has simplified Telstra's business model and reduced complexity for investors.
Asset sales have generated substantial cash returns while allowing management to focus on core telecommunications infrastructure, where Telstra has sustainable competitive advantages. This strategic focus has improved operational efficiency and reduced execution risk.
6.2 Portfolio Optimisation Continues: Management continues to evaluate portfolio opportunities to maximise shareholder value.
- Telstra's constant work to optimise its portfolio shows that management is focused on capital efficiency and creating value, instead of just trying to get bigger. This discipline is now a key part of the new Telstra.
7. Future Growth Catalysts: Positioning for FY30
7.1 AI and Technology Investment: Strategic investments in artificial intelligence and automation continue to drive cost efficiencies and operational improvements.
- Technology investments with clear ROI demonstrate management's realistic approach to emerging technologies, focusing on practical applications that enhance operational efficiency rather than speculative ventures.
7.2 Infrastructure Development: In FY25, it reached 3 million square km of mobile coverage, now reaching 99.7% of Australia's population, demonstrating continued network leadership.
- Network coverage expansion supports customer retention and pricing power while positioning Telstra to benefit from growing data demand. This infrastructure advantage is difficult for competitors to replicate.
FY26 Guidance Framework: Looking ahead, Telstra is guiding to an underlying EBITDA (after lease amortisation) of $8.15 billion to $8.45 billion and cash EBIT of $4.55 billion to $4.75 billion.
Investment Thesis: A Transformed Telstra with Near-Term Headwinds
Telstra's transformation from a cumbersome giant to a streamlined infrastructure leader is a work in progress, with leading mobile margins, improving fixed returns, and prudent capital allocation yielding stable cash flows and 1-1.5% growth potential. However, FY25's mobile headwinds - trading down, elevated churn, and competitive shifts cloud the outlook, contributing to a post-results share dip despite profit beats and returns initiatives.
The blend of 5.6% dividend growth, $1 billion buyback, and 5.3 - 6% FCF yield offers compelling total returns in uncertainty, ideal for income portfolios. As asset sales proceed and high-ROI investments continue, Telstra remains positioned for sustainable value creation while adapting to industry disruptions.
Management's clear pathway to FY30, supported by continued investment in core competencies and operational excellence, positions Telstra as a defensive growth stock with compelling total returns. The company's financial strength and market position provide resilience against economic uncertainty while maintaining exposure to Australia's long-term digital growth trends.
Conclusion: A Transformation Success Story
Telstra's FY25 results represent the successful completion of one of Australia's most significant corporate transformations. From a government monopoly to a competitive market leader, the company has navigated regulatory disruptions, technological changes, and management transitions to emerge as a streamlined and efficient operation.
The financial results demonstrate that the T25 strategy has delivered on its promises: improved margins, sustainable cash flows, and enhanced capital efficiency. Looking ahead to FY30, Telstra is well-positioned to deliver consistent returns to shareholders while maintaining the flexibility to respond to industry evolution.
For investors seeking exposure to Australia's digital infrastructure with predictable income and defensive characteristics, the transformed Telstra represents a compelling opportunity. The completion of the transformation phase positions the company to focus on operational excellence and sustainable value creation in the years ahead.
Note on Telstra's Capital Intensity Trap and DPS Allocation
Telstra’s network paradox creates a growth trap, where network expansion attracts more customers and usage, necessitating continuous high capital expenditures that suppress free cash flow and limit dividend growth or reinvestment. This high capex is essential for maintaining network leadership against leaner competitors and delivers subpar returns, and risks balance sheet stress, as reliance on asset sales or debt becomes critical to sustain financial flexibility.
Growth Trap: More network → More customers → More usage → More capex. Returns Impact: Historically subpar ROIC (5-6%) due to continuous investment needs. High CapEx requirements suppress FCF, limiting reinvestment or dividend growth potential.
- High Capex Intensity: Telstra’s FY26 capex, projected at $3.8–$4.1B (15–17% of an estimated $24.5B revenue), supports ongoing 5G optimisation (targeting 98% coverage) and initial 6G trials, fuelling customer growth (2.5–3% YoY) and data usage (~10–12% YoY).
- Ongoing Capex Burden: The relentless capex cycle, including intercity fibre and spectrum auctions (e.g., the 3.7 GHz band, approximately $500M–$1B), constrains FCF to roughly $1.5B after strategic outflows. This burden, amplified by future 6G costs (post-2027), restricts funds for debt reduction or growth initiatives.
- DPS Reliance on FCF: Telstra’s 19c dividend ($2.0B, 70% payout ratio) is sustainable but leans heavily on limited FCF ($1.5B), leaving a thin buffer. Upcoming costs (e.g., restructuring, spectrum) increase risks, potentially forcing reliance on debt (1.75x–2.25x EBITDA) or asset sales (e.g., InfraCo, International or others).
Telstra’s DPS payments ($2B) are largely covered by FCF, with the buyback ($1B) funded from remaining cash flow and asset monetisation.
Note on Versent's Dilution
Telstra acquired Versent for $267.5 million. The acquisition was announced on October 11, 2023, and finalised on November 17, 2023.
Why Telstra Acquired Versent
- The acquisition aimed to scale Telstra Purple’s tech services.
- It enhanced capabilities in cloud, security, data, and identity management, leveraging Versent’s expertise with AWS and its Stax platform.
- This move also supported Telstra's T25 strategy to meet the growing demand for cloud-led transformation and to expand into Southeast Asia.
- Moving Up the Chain: The Versent acquisition was a strategic move to climb the value chain, focusing on high-margin services such as cloud consulting and managed services. This shift prioritised creating customer stickiness through long-term, end-to-end solutions, which helps reduce churn compared to traditional telecom services. Versent’s expertise and client base provided new revenue streams in a growing market, helping Telstra differentiate its enterprise services and compete with consultancies rather than hyperscalers.
The deal was Telstra's acknowledgement that it's challenging to compete with the scale and innovation of hyperscalers like AWS and Azure. By shifting to reseller agreements, Telstra tacitly recognised its own cloud infrastructure was no longer viable, which pushed it toward a new, services-focused business model.
Why is Telstra selling stakes in Versent?
Telstra sold a 75% stake in Versent to Infosys for $233 million in August 2025, capitalising on Versent’s post-integration value and aligning with its Connected Future 30 strategy shift toward connectivity and capital efficiency amid intensifying cloud market competition.
Strategic Reasons
- Core Business Focus: Prioritises telecom infrastructure (mobile, fixed, InfraCo). Versent’s cloud consulting is non-core, enabling streamlined operations.
- Partnership Leverage: Infosys’s AI (Topaz) and cloud (Cobalt) expertise enhances Versent’s value without Telstra bearing full costs.
- Enterprise Reset: Aligns with Enterprise division restructuring ($715 million cost, 2,800 job cuts) to focus on network-driven services.
Financial Lens
- Cash Flow Boost: $175 million upfront supports Telstra’s $1 billion share buyback and $800 million network investments.
- Margin Protection: Cloud consulting margins face pressure from hyperscalers and service integrators like Infosys. Selling mitigates this, with a 25% stake retained for future gains.
Why Infosys Acquired a 75% Stake in Versent
In August 2025, Infosys acquired a 75% stake in Versent Group from Telstra for $233 million to enhance its cloud and IT services portfolio, leveraging Versent’s AWS expertise and Telstra’s enterprise network.
This acquisition bolsters Infosys’ cloud and AI capabilities, leverages Telstra’s distribution network, and drives regional expansion. It’s unknown if the bid was open to other players; if not, then it signals Telstra’s trust in Infosys’s capabilities and strength.
Strategic Reasons
- Enterprise Customer Access: Versent’s likely long-term enterprise contracts ensure stable revenue and access to Australian businesses, aligning with Infosys’s expertise in cloud-based digital applications, countering local competitors like Accenture.
- Telstra’s Distribution Network: Versent’s integration with Telstra’s customer ecosystem serves as a robust distribution channel, connecting Infosys to AWS-aligned enterprise clients across finance, government, and retail, leveraging Telstra’s brand for stickiness and faster sales cycles.
- Cloud and AI Synergies: Integrating Versent’s Stax platform with Infosys’s Cobalt (cloud) and Topaz (AI) enhances offerings, strengthening competitiveness against hyperscalers and Accenture’s aggressive AI-driven acquisitions.
- Regional Expansion: Versent’s Southeast Asia presence accelerates Infosys’ growth in a high-demand region.
- Operational Control: The 75% stake ensures financial and operational control, with Telstra’s 25% stake supporting partnership-driven customer retention.
- Market Penetration: Telstra's near-universal enterprise connections and its trusted relationship with the Australian government (as seen with the Digicel subsidy) could unlock a floodgate of new customers. This deal has a similar potential to Infosys's 2018 partnership with the Australian Open, which helped the company evolve and enhance its perception from an IT-centric brand to a business-focused identity. By working with Telstra, Infosys can further cement its position as a go-to strategic partner.
Post FY25 Results - Why Telstra's Share Price Declined
Telstra’s share price fell over 2% after its FY25 results, closing at $4.82 on Sep 3, 2025, down 1.43% from $4.89. The drop followed FY26 EBITDA guidance of $8.15-$8.45 billion, below consensus ($8.44 billion), despite a 31% profit rise to $2.34 billion and a $1 billion share buyback.
CEO Vicki Brady noted, “We’ve been challenged by higher-than-expected inflation and costs,” impacting cost reduction, and highlighted mobile growth (560,000 new customers) but acknowledged TPG-Optus deals competitive pressure on Telstra’s mobile business.
Fair Value Forecast: Morningstar’s fair value estimate rose to $4.72 from $4.50, reflecting lower capex.
Sources: Seekingalpha, Yahoo Finance, AFR, Morningstar, Bloomberg, Telstra, Infosys, ChatGPT, Claude, Gemini, Bloomberg, Forbes, Economist, Times, Wired, FourweekMBA, CIO, my Blog
