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(The following statement was released by the rating agency) SYDNEY, March 04 (Fitch) Fitch Ratings has affirmed Telstra Corporation Limited's (Telstra) Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'A'. The Outlook on the IDR is Stable. The Short-Term IDR and the commercial paper rating have been affirmed at 'F1'. KEY RATING DRIVERS Market-Leading Position: Telstra's ratings reflect leading market share in the fixed-wire and wireless communication markets. It also reflects its superior coverage, the reliability and technology leadership of its wireless network, the coverage and capacity of its backhaul network, and its ownership of a material share of domestic mobile spectrum. A substantial rollout of its 4G network, covering 85% of Australia's population as at 31 December 2013, will continue to support its leadership in the mobile segment. Sustainable Competitive Advantage: Telstra's strong free cash flows relative to competitors', enables it to sustain a competitive advantage and facilitate growth in mobile voice and broadband margins, while increasing mobile market share. The competitive nature of the Australian mobile telecommunications industry is unlikely to change in the near future, since its low population density and the lack of available spectrum deter potential new entrants. Strong Profitability Maintained: The profitability of Telstra's individual segment margins continues to remain strong, benefitting from its multi-play offering of mobile, fixed voice, broadband, and pay-TV through its T-Box offering. Increased take-up of bundled services has improved margin in the fixed internet segment. Data-centric pricing and lower handset subsidies in the mobile segment have resulted in a resurgence of mobile margins. Low Risk from NBN Review: Telstra is well-positioned to deal with the likely outcomes from the government's current review of the National Broadband Network (NBN) policy. In the event that the NBN agreements are terminated, Telstra will continue to have a contractual right to receive infrastructure rental payments for equipment leased to NBN Co., and could resume its fixed-wire incumbency in areas not covered by the NBN network. Conservative Capital Management: Telstra has indicated that it intends to distribute surplus free cash flows that accumulate after setting aside funding for investment expenditure, future capital commitments and funding requirements to retain financial flexibility. Telstra announced a higher interim dividend per share of 14.5cents in 1H14 following a strong 1H14 performance, compared to 14cents at FYE13. We expect Telstra to remain prudent in its approach to distributing surplus free cash flow from the NBN transaction to shareholders in future. Lower Borrowing Costs: As Telstra's fixed rate borrowings mature, Fitch expects Telstra to continue to benefit from the relatively lower variable base rates. Telstra's cash borrowing costs decreased by AUD117m reflecting a lower average interest costs of 6.1% in 1H14 (1H13: 6.4%). The reduction is attributed to the fall in variable base interest rates in Australia, reflecting lower costs on floating debt portion, and from re-financings at lower rates. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating action include: - Funds flow from operations-adjusted net leverage rising above 1.75x on a sustained basis; - A material adverse change to the terms and conditions of the NBN agreements, although we do not consider it to be likely; - Negative free cash flow after dividends on a sustained basis. Positive: Given sector-related risks, a rating upgrade is unlikely in the medium term. Contacts: Primary Analyst Sajal Kishore Director +61 2 8256 0321 Fitch Australia Pty Ltd., Level 15, 77 King Street, Sydney, NSW 2000 Secondary Analyst Steve Durose Senior Director +61 2 8256 0307 Committee Chairperson Matt Jamieson Senior Director +61 2 8256 0366 Applicable criteria, 'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage', dated 5 August 2013 are available atwww.fitchratings.com. Related Research: Rating Telecoms Companies - Sector Credit Factors, dated 12 August 2012. Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: iselle.gonzalez@fitchratings.com. Additional information is available atwww.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkagehttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139 Rating Telecom Companieshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323 Additional Disclosure Solicitation Statushttp://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822490 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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