Why Telstra isn't selling InfraCo (and its growth plans for the future)

Since reporting in August, Telstra's (ASX: TLS) share price has slid more than 8% into the red - with investors disappointed by the telco giant's shock decision to maintain ownership of its fixed infrastructure business, InfraCo. 

But CFO and Group Executive Michael Ackland is adamant that maintaining the status quo was the right decision. He argues there are two major reasons why retaining the stake will benefit shareholders over the long term - particularly in the current inflationary environment. 

"The demand for digital infrastructure is exploding, driven initially by the move to the cloud, but we are at the start of a wave around generative AI which is going to generate huge demand for digital infrastructure," Ackland says. 

"We [also] think there are further opportunities for efficiencies across that infrastructure business - and that can be in terms of power usage and optimising power usage, but also optimising the use of that infrastructure that's spread all over the country right now." 

That's not to say Telstra hasn't faced its challenges. As Ackland explains, the telco's balance sheet strength is now more important than ever, as Telstra battles with rising borrowing costs, higher costs of construction (including fuel and labour costs), elevated energy prices, and inflated data and AI resources. 

"We are seeing an inflationary impact on our business... [However], we've made a lot of long-term investments that are paying off in keeping that cost discipline in focus," he says. 

"We did commit to taking half a billion dollars worth of cost out from 2022 to 2025 - and we expect to deliver the vast majority of that by 2025." 

In this interview, Ackland outlines the opportunity Telstra is seeing in the digital ecosystem, discusses the company's bid for Versent, and shares why retail shareholders should keep holding the stock over the next five years. 

Note: This interview was recorded on Wednesday 11 October 2023. 

Timecodes: 

• 0:00 - Intro 
• 0:39 - Key results for FY23 
• 1:38 - Cash flow down 78% - where TLS has spent the majority of this cash 
• 2:55 - Dividend sustainability 
• 4:20 - The InfraCo decision 
• 6:10 - The impact of inflation and higher rates on TLS 
• 7:30 - Response to price hikes 
• 9:09 - M&A activity - on growth in Digicel Pacific and the Versent bid 
• 11:45 - How TLS avoids "diworsifying" 
• 13:40 - TLS's T25 strategy 
• 15:20 - Why retail shareholders should keep holding  
• 16:43 - Reader question from Bernard: Why not pursue a Starlink-type strategy

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