Telstra has described FY26 as a strong year. From a shareholder perspective, that assessment is understandable. Earnings increased, net profit reached $2.4 billion, the full-year dividend rose to 21 cents per share and the company announced another $1 billion share buyback.
But the most important figure in the FY26 results moved in the opposite direction: Telstra’s total income declined by 0.9% to $23.4 billion.
That decline occurred despite the continuing explosion in data traffic across telecommunications networks. Australians are using more cloud services, streaming more content and increasingly adopting artificial intelligence applications. Yet this growth in digital activity is not producing comparable revenue growth for the company providing much of the underlying connectivity.
This is not a uniquely Australian problem. It reflects a structural challenge facing telecommunications companies worldwide.
Mobile remains the main engine
Mobile remains Telstra’s strongest business. Mobile service revenue increased by 4.8% and average revenue per handheld user rose by 3.7%. However, the underlying figures reveal a more complicated picture.
Of the 274,000 additional handheld services, 235,000 were wholesale connections. Prepaid connections increased by 46,000, while higher-value postpaid services declined by 7,000. Telstra also expects revenue per customer to benefit from mobile price increases introduced in May.
Mobile is therefore still growing, but much of the customer growth is occurring at lower price points, while higher prices are helping maintain revenue. This is hardly evidence of a rapidly expanding market.
The situation across Telstra’s other businesses is more sobering.
Fixed consumer and small-business income declined by 3%, while the number of Telstra and Belong services fell by 3.7%. Nevertheless, earnings from this division increased by 13.5%, largely because of cost reductions and the increased use of 5G fixed wireless.
This is an impressive management result, but it is also a textbook example of earnings growth without business growth. Telstra generated more profit from fewer services and less revenue.
Enterprise contraction is more concerning
Telstra’s enterprise business remains a significant weakness. Income declined by 8% and earnings fell by 17%. Within that division, data and connectivity income dropped by 6.2%, while earnings from these activities fell by more than 44%.
This is especially revealing. Businesses are rapidly digitising their operations, moving applications into the cloud and experimenting with AI. In theory, this should create an enormous opportunity for telecommunications companies. In practice, much of the resulting value is being captured by cloud providers, software companies, data-centre operators and digital platforms.
Telstra provides the connectivity, but connectivity is increasingly treated as a commodity.
The international business also contracted, with income down 11% and earnings declining by 3.5%. Telstra is responding by selling assets, withdrawing from selected services, simplifying its portfolio and concentrating on areas where it believes it can compete more effectively.
These may all be sensible decisions. However, selling businesses and cutting costs can improve profitability without making the overall company larger.
Infrastructure growth comes from the bottom of the value chain
Telstra sees digital infrastructure as an important growth opportunity. Its Aura intercity fibre network, subsea cables, ground stations and dark-fibre assets are attracting demand from companies including Microsoft, Google and Amazon Web Services.
This is positive. Australia needs more high-capacity, resilient digital infrastructure, and Telstra is well positioned to provide it.
However, infrastructure sits at the bottom of the digital value chain. Telstra must make substantial upfront investments, construct and maintain the network, manage reliability and resilience, and wait many years for a financial return.
The hyperscalers then use this infrastructure to sell higher-value cloud, data, software and AI services. They control the platforms, applications, customer relationships and much of the data. Local companies will also benefit from Telstra’s infrastructure, but the greatest economic value is likely to accrue to the global technology companies operating over it.
Telstra expects its Aura investment to achieve a mid-teens internal rate of return and a cash payback period of around nine years. That may make it a sound infrastructure investment. It does not provide the growth or margins available to the hyperscalers using the network.
Infrastructure revenue may compensate for some of the decline in traditional telecommunications, but it does not fundamentally reverse Telstra’s shrinking revenue base.
AI is producing efficiencies rather than new revenue
Telstra is already using AI extensively in customer service, software development, network operations and cybersecurity. Its AI usage increased dramatically during FY26 while overall cloud costs declined by 7%.
This is another positive operational development, but it reinforces the broader argument. AI is currently benefiting Telstra primarily as a productivity and cost-reduction tool—not as a major new source of telecommunications revenue.
Underlying operating expenses fell by 3%, while fixed costs declined by 1.8%. These savings, together with mobile pricing, portfolio restructuring and disciplined capital management, allowed Telstra to increase earnings despite declining overall income.
There is nothing inherently wrong with that strategy. Telstra is a mature company operating in a mature market, and management has a responsibility to protect profitability and shareholder returns.
But cost reductions, price increases and share buybacks do not constitute long-term growth.
Telstra remains financially strong, but its FY26 results reveal a company becoming smaller and more concentrated. Mobile is carrying more of the business, traditional fixed and enterprise activities are contracting, and future infrastructure growth will largely support companies operating higher up the digital value chain.
The higher profit is good news for shareholders. The declining revenue is the more important indicator of where Telstra—and the wider telecommunications industry—is heading.
Paul Budde