As our biggest telco, Telstra Corporation Ltd (ASX: TLS) has, in years gone by, enjoyed a number of significant competitive advantages over its peers.
The former government-owned company was gifted a number of extremely valuable assets when its shares entered public markets in 1997. However many of those legacy assets, such as Sensis (previously known as Pacific Access) and its copper cable network, are now entering a period of uncertainty.
Earlier this year, Telstra divested 70% of its ownership in Sensis to Platinum Equity for $454 million. However its copper cable network, an asset which continues to provide huge profit margins for the company, is becoming part of the NBN Co's fibre-to-the-node (FTTN) network rollout.
Of course, Telstra is receiving a hefty payment for relinquishing the right to charge rival telcos' access to the copper network and perhaps fortuitously, it comes at a time when a more consumers are choosing to use mobile devices rather than fixed data and voice.
Telstra's mobile network is a cut above the rest and boasts some 16 million domestic mobile services.
Although the EBITDA margins on Telstra's mobiles (40% in FY14) aren't nearly as good as those on fixed voice (60%), it's the biggest revenue driver for the company.
Thanks to its enviable free cash flows and increasing cash balance, Telstra will continue to dominate this division. With burgeoning mobile data usage, it could threaten the very existence of the NBN Co's business case.
But not because it's faster. Because it's more convenient for nearly all things consumers do on a day-to-day basis.
Shopping, streaming videos, browsing, social media and communication with colleagues does not require a superfast internet connection. Although, Telstra is said to be trialing a mobile network technology which is faster than the FTTN network anyway.
Earlier this week, Telstra announced its $100 million Wi-Fi network is on track to deliver 1,000 free hotspots around Australia, before Christmas.
It certainly appears Telstra is investing in the right places to maintain its competitive advantages, despite the changing landscape and continued pressure from rivals like TPG Telecom Ltd (ASX: TPM) and Optus – owned by Singapore Telecommunications Ltd (CHESS) (ASX: SGT).
What about Valuation?
Telstra clearly has the wide economic moat every long-term investor looks for, but its share price is where it falls down. Currently the shares (which closed at $5.38 yesterday) appear priced to perfection.
That's despite an overseas expansion and the recent announcement of a somewhat appealing off-market share buyback, which'll increase earnings per share. All considered, Telstra would make a good defensive buy, at the right price.
