TELSTRA will be challenged to replace all earnings lost to the National Broadband Network when the rollout of the NBN is completed, says credit ratings agency Moody’s.

Moody’s says Telstra will remain Australia’s biggest telco but will need to find new revenue streams or reduce debt — possibly funded by a cut to dividends — if it is to maintain its current A2 credit rating once the NBN is active. Telstra has estimated previously that the National Broadband Network will cut $2 billion to $3 billion from its earnings annually.

Moody’s, in a research note released on Thursday, says the telco giant will face pressure from lost wholesale revenue, access fees it will have to pay NBN, and competition pressures that will crimp the premium it can charge for retail mobile services.

Moody’s expects Telstra’s earnings margin to remain around its 2015 level of 42 per cent in the next one to two years as the NBN continues to roll out and Telstra receives payments as customers are disconnected from its wholesale network.

But after the rollout is completed — due by 2020 — Moody’s expects Telstra’s overall earnings margin to contract to the high thirties, while compensation for the loss of the wholesale business is not expected to cover lost earnings and the fees that Telstra will have to pay to NBN.

The ratings agency says that to permanently fill the earnings gap, Telstra must find new revenue streams and increase existing streams.

“We believe that Telstra will be able to fill this EBITDA (earnings before interest, tax, depreciation and amortisation) gap to a certain extent, but will be challenged to do so fully,” Moody’s said in a research note on Thursday. Moody’s expects the mobile segment to remain Telstra’s biggest contributor to earnings.

The telco is also expected to focus on areas that are growing rapidly but still generate a small proportion of revenue, such as network application services, and new businesses such as health and software.

“We believe it will be a stretch for the EBITDA from these businesses and growth in mobile revenues to fully offset the EBITDA gap by 2020,” Moody’s said. Assuming there is an earnings gap in 2020, Telstra could maintain its credit metrics by reducing dividends and using the cash to cut debt, or by applying excess cash from sources such as NBN payments and the sale of non-core business.

Moody’s says Telstra will remain the industry leader but its fixed retail voice and broadband market share is expected to decline and the mobile market share to stagnate or fall in the face of strong competition.

Telstra said in May that it had a strategy in place to offset the impact of the NBN on its earnings once the rollout was complete, focused on growth in its core businesses, albeit at lower margins, building new businesses and improved productivity.