The share price of charter AE Portfolio Conservative Holding Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY) has fallen from a nearly eight-year high of AUD5.14 on May 22, 2013, to a close of AUD4.50 on June 24.

This decline of 12.5 percent mirrors the S&P/Australian Securities 200 Index’ 10.8 percent fall from 5220.987 on May 14 to 4655.960 on June 25. And both charts look a lot like that of the Australian dollar, which slid by 14 percent from USD1.0545 as of April 11 to as low as AUD0.9067 on July 5.

The decline in Telstra’s share price, although steep, and, coupled with the impact of the declining Australian dollar-US dollar exchange rate, to levels that make it attractive to US-based investors once again after it held above value levels for much of the time its’ been in the Portfolio, leaves it in the neighborhood of AUD4.75.

And that means Telstra’s stock is simply holding onto to levels it established before then lost during the Great Financial Crisis. It also means Telstra is trading below our buy-under target of USD4.60.

Questions remain about Telstra’s National Broadband Network deal with the Australian government, particularly in the aftermath of the toppling of Prime Minister Julia Gillard in favor of the man she replaced, fellow Labor Party standard-bearer Kevin Rudd, and with a federal election looming.

Telstra is also losing its exclusivity advantage in the fourth-generation mobile telephony (4G) segment, as its main rivals–Singapore Telecom Ltd’s (Singapore: ST, ASX: SGT, OTC: SNGNF, ADR: SGAPY) Australia unit Optus and Vodafone Plc’s (London: VOD, NYSE: VOD) Vodafone Australia–play catch-up.

That it’s now below our buy-under target is a significant development, as the company widely perceived as the AT&T Inc (NYSE: T)/Verizon Communications Corp (NYSE: VZ) of Australia had been trading above target for more than a year.

Telstra hit a five-year closing high on the ASX of AUD5.14 on May 22 but has traded sharply lower on a combination of rising interest rates in the US and the specter of asbestos-related claims arising from work being done by Australia’s National Broadband Network (NBN) on infrastructure formerly owned by the company.

The NBN is a 10-year, AUD37.4 billion infrastructure project that will modernize Australia’s aging copper network, which is largely owned by Telstra. After two years of contentious negotiations, Telstra finally hammered out a deal last year with the government under which it would receive compensation on a rolling basis as its copper network is shut down and replaced by fiber-to-the-premises (FTTP).

Responding to a report in the Australian Financial Review about its potential asbestos-related liability, Telstra CEO David Thodey said, “We have been managing the risk of the asbestos within our network for many years. Telstra has processes for managing claims of any type from employees and the public to ensure that such claims are handled sensitively and expeditiously.”

Mr. Thodey noted that Telstra takes its “responsibilities very seriously in looking after our employees and the community and our highest priority is their safety and peace of mind.” He also stated that at this time there is no material financial risk to Telstra.

In June Telstra stopped all remediation work after there was community concern over the way that subcontractors were handling asbestos discovered in the pits and ducts. Management has said it has no immediate plans to resume full work on its pits and ducts in the wake of concern over the handling of the asbestos removed during remediation work in preparation for the NBN.

Also, the Australian Competition and Consumer Commission (ACCC) recently announced that Telstra on seven separate occasions was found to have violated its structural separation undertaking (SSU) that set the terms under which it would split its wholesale and retail fixed-line businesses during the NBN rollout.

Telstra reported each of the matters to the ACCC under its mandatory compliance obligations and has taken steps to ensure compliance with its obligations. And this demonstrates that the SSU is working.

The ACCC alerted those wholesale customers impacted by the breaches so that they could take steps to minimize any impact upon their businesses. The process thus far demonstrates that the SSU is working.

The ACCC outlined the breaches in its first report on Telstra’s compliance with the SSU, which has been tabled in Parliament. This, and the ongoing asbestos situation, means Telstra’s relationship with the NBN is potentially a major issue when Australians go to the polls sometime in the second half of 2013.

On Jan. 30, 2013, then Prime Minister Gillard announced the federal election would be held on Sept. 14, 2013.But no writ of election has been issued, and the date is subject to change, though it must be held no later than Nov. 30.

And Mr. Rudd’s re-ascension has thrown not only the timing but also the outcome of the coming vote into doubt. He has taken a visible part in the rollout of the NBN as currently planned and is probably best seen as a proponent of the status quo.

Telstra wouldn’t necessarily lose, however, if the Liberal-National Party coalition prevails. Opposition leader Tony Abbott has actually backed a cheaper fiber-to-the-node (FTTN) network that would piggyback on Telstra’s existing copper network as opposed to eliminating it entirely.

Telstra, for its part, is open on the question of what kind of network should be built. That’s a matter for the government of the day, not Telstra. What it won’t do is accept anything less than what it’s promised under the existing arrangement.
It’s important to note that the current deal, with its estimated net present value of AUD11 billion, doesn’t involve a simple lump sum payment but rather a number of revenue streams payable over the next several decades.

Of the AUD11 billion, about AUD5 billion is for access to Telstra’s infrastructure, AUD4 billion is for the progressive disconnection of copper lines, while AUD2 billion of payments and savings would flow from a separate arrangement with the government for providing essential services and for the re-training of Telstra employees and other bits and pieces.

Telstra would also receive AUD500 million of compensation if the rollout were permanently halted after it had reached 20 percent of premises. But with the rollout already falling well behind the original schedule there is no prospect of that occurring before the Coalition would freeze the rollout, assuming it did win the election.

Telstra effectively has a natural hedge against a change of government and a change of NBN policy. If the rollout were simply halted, for instance, Telstra would still continue to collect all the cash flows from the overwhelming majority of its copper lines that would still be intact.

In that sense Telstra is protected if the rollout is frozen while the Coalition conducts a review of its options and of their costs and benefits and then attempts to strike a new deal with Telstra.
Under the Coalition plan the NBN would run fiber to Telstra’s existing nodes, but it would use the existing copper connections from the nodes to premises–the most costly part of the existing NBN build. The Coalition would have to renegotiate a deal with Telstra that likely would deliver, at least, equivalent value to the AUD11 billion it’s already contracted to receive.

A fiber-to-the-node network would be much cheaper to build than a fiber-to-the-premises network. Although much quicker to build, however, FTTN would enable significantly lower speeds than FTTP. At the same time, more customers would switch over to the Coalition version much earlier than they would in a FTTP rollout, and Telstra would receive payment for handing those customers over to NBN much earlier.

Bringing forward the payments would mean that while Telstra might receive fewer absolute dollars from NBN over the next couple of decades it could receive as much, if not more, in net present value terms as it would under the current deal.

And that’s a viable basis for a renegotiation of the deal in the event of a Coalition victory. With the AUD11 billion of net present value as a non-negotiable starting point, there’s only upside for Telstra shareholders.

As for the burgeoning 4G competition, Telstra continues to enjoy the benefits of its significant head start. The company launched its long-term evolution (LTE) services in September 2011 and has now connected more than 1.5 million 4G devices.

Telstra’s 4G network is currently available in 100 metropolitan and regional locations, including all capital central business districts. It covers 40 percent of Australia’s population, on the way to two-thirds by mid-2013 after it doubles coverage in Sydney, Melbourne, Brisbane, Adelaide and Perth.

Building out the 4G LTE network was a major piece of Telstra’s AUD3.6 billion of capital spending in fiscal 2012. Over the next two years Telstra plans to invest AUD500 million, including on its mobile network.

Telstra spent AUD1.3 billion in an April 2013 spectrum auction, taking most of the 700 megahertz (MHz) and 2.5 gigahertz (GHz) spectrum available. The 700 MHz and 2.5 GHz spectrum will enable Telstra to deliver faster speeds, more capacity and expansive wide-area coverage of 4G LTE technology on its Next G network.

The low-frequency nature of 700MHz means the mobile signal can travel relatively longer distances, which is ideal for improving the services Telstra can offer to customers in rural and regional areas. It also means better in-building coverage in metro and suburban areas.

The licenses have a term of 15 years. The spectrum allocations will be financed predominantly through debt. Telstra is required to pay the successful price in the third quarter of 2014.

It’s another move that set it apart in terms of its ability to invest in building and maintaining a superior mobile network.

Telstra is also currently testing LTE Broadcast technology, which would allow it to broadcast one video stream to multiple people at the same time. That approach would be more efficient than the current method in which video is streamed separately to each customer.

Optus has 4G FD-LTE coverage in five state capitals–Sydney, Melbourne, Perth, Adelaide, and Brisbane–as well as popular regional tourist destinations including Byron Bay, Coffs Harbour and the Gold Coast. A 4G TD-LTE network went live in Canberra in late May and will later be rolled out to other markets.

Optus plans to spend AUD2 billion over two years on 4G services in an effort to take on Telstra.  It spent AUD649 million at April’s spectrum auction, half of what Telstra paid.

Vodafone launched its 4G network in major metropolitan areas in June and opened the service to new customers on July 10. It plans to deploy 4G in stages, adding 2,000 additional mobile sites this year. As of the June launch Vodafone had most of its coverage in Sydney and Perth and “some coverage” in Adelaide, Brisbane, Gold Coast, Newcastle and Wollongong.

Vodafone, late to the game and hoping to stem customer losses, is investing AUD1 billion over two years on network upgrades. Vodafone didn’t participate in April spectrum.

Telstra’s early rollout of LTE likely will keep it ahead of the competition. Accelerated investment in the LTE network makes it hard for its mobile rivals to challenge Telstra’s network superiority. SingTel Optus and are likely left to pursue strategies as “alternative providers” to Telstra.

Telstra remains on track to return to dividend growth in fiscal 2014, which began July 1, 2013.

The company posted an 8.8 percent increase in net profit after tax (NPAT) for the first half of fiscal 2013 to AUD1.597 billion. Total revenue for the six months ended Dec. 31, 2012, was up 1.7 percent to AUD12.711 billion.

Strong customer growth drove bottom- and top-line results, as Telstra added 607,000 new customers in Australia and 321,000 international mobile subscribers during the period.

Mobile revenue grew by 4.6 percent to AUD4.56 million, as total mobile customers grew to 14.4 million, including 6.9 million postpaid subscribers and 3.3 million mobile broadband users.

Network Application and Services (NAS) revenue was up 10.6 percent to AUD636 million, with growth driven by several long-term contracts were signed during fiscal 2012. Telstra’s NAS unit houses its “cloud” computing operations and manages core telecommunications products for businesses.

Mr. Thodey noted during management’s conference call to discuss results that cloud computing posted 25 percent revenue growth for the first half of fiscal 2013. The operation is adding customers at a significant rate.

International businesses, including Telstra’s investments in Asia, grew revenue by 10.8 percent through customer growth in the Hong Kong mobile services business (CSL), global connectivity and NAS products (Telstra Global).

Management recently confirmed full-year earnings guidance; fiscal 2013 total income and operating earnings growth will be in the low single digits, while management expects free cash flow to be between AUD4.75 billion and AUD5.25 billion. Telstra forecast total capital expenditure for the year to be around 15 percent of sales.

Telstra has generated a total return in US dollar terms of 64.85 percent since Sept. 26, 2011, versus gains of 29.21 percent for the S&P/ASX 200 Index, 48.04 percent for the S&P 500 Index ad 38.42 percent for the MSCI World Index.

Telstra, yielding more than 6 percent at these levels, is a strong buy under USD4.60 on the Australian Securities Exchange (ASX) using the symbol TLS and on the US over-the-counter (OTC) market using the symbol TTRAF.

Telstra also trades on the US OTC market as a Level I, sponsored American Depositary Receipt (ADR). Telstra’s ADR is worth five ordinary, ASX-listed shares. Telstra’s ADR is a buy under USD23.

Telstra’s fiscal year runs from Jul. 1 to Jun. 30. The company reports full financial and operating results twice a year; it typically posts first-half results in early February, with full fiscal year numbers out in early August.

Telstra’s board approved and management declared an interim dividend of AUD0.14 on Feb. 6, 2013. It was paid Mar. 22, 2013, to shareholders of record on Feb. 22, 2013. Shares traded ex-dividend on Feb. 18.

A final dividend for fiscal 2013, likely of AUD0.14, will be declared on Aug. 8, 2013, when management reports full financial and operating results. It will probably be paid Sept. 20, 2013, to shareholders of record as of Aug. 23, 2013. Shares will likely trade “ex-dividend” on this declaration as of Aug. 19, 2013.

Dividends paid by Telstra are “qualified” for US tax purposes. Based on the “fiscal cliff” compromise reached in Washington, DC, in early January 2013 dividends will be taxed at Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

The Australian government withholds 5 percent to 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock, two rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology. There are nine “hold” and four “sell” ratings on the stock at present. The “best consensus” 12-month target price among the 11 analysts that provide such a number is AUD4.52, with a high of AUD5.60 and a low of AUD4.20.