Telstra has put on hold any decision to undertake a share buyback or lift dividends despite reaping billions of dollars from the national broadband network deal (NBN).
Australia's largest telco said in a market update on Thursday it would have $2-3 billion worth of excess free cash flow in the next three years as a result of its participation in the NBN.
However, it has maintained its full year dividend at 28 cents a share and said a share buyback at this time would not be an efficient use of the excess capital, estimated to be between half to one billion dollars at the end of 2011/12.
Telstra chief executive David Thodey said the telco's capital management strategy was a logical and considered decision.
"On any buyback, it's got to be significant enough to create value for shareholders and I think sometimes that's lost in the desire to see buybacks," Mr Thodey told reporters after an investor presentation in Sydney.
"We've seen many buybacks happen in the industry and actually make no difference to the share price or to shareholders.
"So if you are going to do it you have got to be able to make it significant enough and consistent enough."
Telstra chief financial officer Andrew Penn said it was the telco's preference to return capital to shareholders by increasing franked dividends.
"However, we do not expect to have the franking capacity to increase the dividend before 2014," Mr Penn said.
Telstra has paid out a 28-cents-a-share fully franked ordinary full year dividend since 2004/05.
The increase in Telstra's free cash flow is a result of the multi-billion dollar payments the telco will receive for moving customers from its copper network to the NBN in the coming decade.
The schedule of payments are in contracts with the federal government and NBN Co, the government-funded company charged with building and maintaining the network.
Asked if a change of government would affect the extra cash heading into Telstra's coffers, Mr Thodey said the contracts gave Telstra a degree of protection.
The federal opposition's policy is to build a fibre-to-the-node network, which its communications spokesman Malcolm Turnbull has said would be build faster and at a lower cost compared with the Gillard government's $37 billion fibre-to-the-home approach.
Should the opposition win government and seek to implement its broadband policy, Mr Thodey said there was "not a lot of difference in terms of the flows" that Telstra would get.
"So if that's their policy I have little concern," Mr Thodey said.
Telstra reaffirmed previous earnings guidance for the full 2011/12 year, which was for low single-digit revenue and earnings growth, as well as a fully-franked 28-cent dividend.
Telstra's shares were three cents higher at $3.39 at 1516 AEST.
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