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Shareholders of Telstra have listened to the Independent Expert and enthusiastically voted for the National Broadband Network (NBN) deal that will relieve the company of a declining business.

Subject to the competition regulator also approving the deal, Telstra will progressively be paid the equivalent of $11 billion in today's money to shut down its copper phone network and pass over the customers to the NBN Co. It will also lease all its pipes and ducts to NBN Co so it can replace the copper with fibre-optic cables.

Even though it earns very high profit margins, Telstra's fixed-line network has been in decline for close to a decade.

Naturally, Telstra will spend only what it must to maintain the copper network and will instead redirect capital spending towards the high-growth businesses of mobile, broadband, media and network applications such as cloud computing and high-definition teleconferencing.

The company's new hot-shot manager, Gordon Ballantyne, is charged with the herculean task of improving customer satisfaction. To prove the company really is serious about this, the board has realigned management's bonuses strongly towards retaining customers. From the chief executive down, a significant proportion of their annual bonus is now dependent on keeping customers happy.

This is not a superficial, feel-good exercise either. As any successful service company knows, retaining customers and attracting new ones is central to increasing the financial success of the business. The light seems to have been switched on at Telstra.

With incoming NBN payments, lower capital expenditure and improving core business performance, Telstra's cash-flow situation is improving rapidly. The annual dividend of 28? a share will extend into 2013 and the board can now consider the possibility of returning extra cash to shareholders. The fully franked dividend yield now sits at about 12.5 per cent.

Oddly, the NBN could end up being very beneficial for Telstra, even though it would certainly not have chosen this path for itself. The world of telecommunications is becoming increasingly mobile, as smartphones and tablets pervade our daily lives.


Telstra can cement its position as the premier telecommunications service provider. It will eventually no longer have the baggage of providing the basic

fixed-line infrastructure. At $3.15 a share, Telstra is still looking cheap.

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