Telstra chief executive David Thodey has conceded profit margins will shrink as the company looks to expand into Asia and invest in areas outside of its core businesses.
The company is moving into new business segments to avoid becoming a dumb-pipe internet provider whose profits are eaten by global tech giants.
Speaking at the company's strategy day, Mr Thodey assured investors the push to create new revenue streams would not stop the telco from getting a rise in profits.
"I think it's unusual to find business with the sort of margins we have, therefore as you look at starting new businesses, they start with lower margins," he said. "But as you build them they hopefully give you a better return."
In the past financial year, Telstra had an earnings margin before interest, taxes, depreciation, and amortisation of 42.5 per cent and profit margin of 15.7 per cent.
CLSA forecasts the EBITDA margin will fall to 42 per cent while the profit margin will remain flat at 15.7 per cent over the year ending June 30, 2015.
Mr Thodey said this was a transition stage the telco had to accept. He believes Telstra will look radically different within the next five years.
"I think we went through a stage of saying that unless we can find something with equal margins that we've got today, then we wouldn't do anything," Mr Thodey said. "That's an unrealistic expectation."
Telstra has invested in Australian and US start-up companies, Chinese internet services and on Wednesday relaunched its healthcare division - all in a bid to stave off falling profits in its traditionally lucrative fixed-line unit.
Telstra chairman Catherine Livingstone told the Financial Review and J.P. Morgan Chanticleer Lunch on Thursday that both patience and long-term faith were vital for success in Asia.
"It's predicated on developing relationships and being patient, and those relationships can then turn into partnerships ... it does take a very long time and you have to be committed and seen to be committed," she said. "It's a highly competitive environment.
"Asia is not an opportunity that's going to fall into our laps."
Credit Suisse research director Fraser McLeish said Telstra was investing in sensible areas given its strong regional telecommunications networks.
"They've still got areas where revenue is declining but they're trying to offset those and they're having some success in new areas," he said. "As long as you're getting returns on what you're investing in different sectors then that's fine.
"They can earn returns on lower margins [and] many of these businesses are much less capital intensive than the core business."
But Arnhem Investment Management partner Theo Maas said almost every one of Telstra's new investments came with lower profit margins than its existing fixed-line business.
"We know that companies who are in that cloud computing business typically have margins of 15-20 per cent," he said. "That's a fair bit away from the 60 per cent they make from fixed line.
"This is the case for every incumbent telco - that the products they used to have were very high margin - but thanks to changes in the technology world, margins will go down."
With its war chest of up to $5.1 billion, Telstra has been busily forming partnerships in Asia, such as its joint venture with Telekom Indonesia, buying out the remaining $US270 million stake of video streaming company Ooyala as well as relaunching its e-health division.
As revealed by Fairfax Media, Telstra has partnered with Medgate, a major Swiss provider of online healthcare services, to provide virtual doctor consultation services.
Chief financial officer Andy Penn reinforced that margins across Telstra's core businesses would not be shrinking.
"If we do more of different types of business which naturally has a lower margin per se, then that might affect the weighted average, but at the individual product-line level we will continue to look to drive similar margins," Mr Penn said.
Telstra confirmed its guidance for 2015, continuing the momentum that saw the telco deliver a 14.3 per cent jump in profits in the past financial year. It predicts low, single-digit income and earnings growth in FY15.
Much of Telstra's mobile earnings rise is set to come from Apple's iPhone 6 launch, despite supply restrictions causing shortages for customers.
"We're encouraged from the results and we're looking forward to reporting on that," Telstra retail group executive Gordon Ballantyne said. "This was a significantly better launch than previous ones."
