Telstra Corporation Ltd (ASX: TLS) is an industry giant.
It's the biggest, most dominant player in Australia, and the darling of many investors for its steady earnings and fully franked, growing dividends.
All that could be about to change, with the advent of Voice-Over-Internet-Protocol (VOIP) already causing significant disruption in the US market and emerging in Australia, according to Alex Pollak, CEO of specialist portfolio investor, Loftus Peak.
If you've used Skype, What'sApp, Viber, Facebook Video, Google Hangouts, or any of a variety of similar services, you've used VOIP.
Essentially this technology transforms communications from a type that would require a traditional mobile network, into one that simply requires data from satellites or Wi-Fi.
It's also substantially cheaper – while a standard text message costs 25c, the same message sent over Viber might cost 4c worth of data, or less. Video and data calls likewise cost only a fraction of traditional mobile network charges.
Telstra earned 38% of its revenue from its mobile network businesses in 2014.
Mobile is also Telstra's only meaningful growth avenue, with fixed line (29% of revenue) and data/IP (12% of revenue) revenues both declining in 2014.
Can you see the threat yet?
According to Pollak, in the US, Google has paired with two mobile phone companies to operate a so-called 'mobile virtual network', using data instead of cell towers to offer traditional mobile services like voice and video calling.
Given that pricing could be between 50% and 90% cheaper than conventional mobile deals, it's easy to see consumers switching over.
It's not just Google offering the new service either, with a variety of other players like cable TV and video streaming companies using their connections to offer VOIP services.
This particular trend isn't occurring in Australia – yet – although the technology is already here, as anyone who's used Skype or Viber will know.
He also notes that Google Hangouts is a particularly well entrenched product – in fact you've probably got it installed on your Android mobile device already. Without marketing it's a sleeping giant for the moment however.
The ASX also boasts a variety of telecom companies like TPG Telecom Ltd (ASX: TPG) and iiNet Limited (ASX: IIN) that are in a position to offer stiff competition in the VOIP space.
As Pollak says, Telstra seems aware of the coming changes, offering VOIP services on its NBN network already, but with data services making up a small part of Telstra's revenue it won't be enough to save the company from a potentially stiff earnings shock in the future.
Now I like Telstra as a company, but I see the arrival of VOIP as a major threat to revenues in the next couple of years, and continued heavy investment in mobile networks could earn diminishing returns if virtual mobile networks take off in a big way in Australia.
It's not as if Telstra will overnight begin bleeding money from its mobile division, but future earnings growth is definitely under threat, and the potential for revenue (and thus earnings) declines in mobile could become real in the future.
All of this makes the unbridled optimism driving Telstra's share price at the moment look completely misplaced, and dangerous to your portfolio.
