Telstra boss Andrew Penn will need to walk a fine line between paying dividends and investing for the future. Credit:Justin McManus The migration to NBN will only speed up over the next few years, and there are no signs of mobile competition abating any time soon. Tough ask for Telstra management Keeping shareholders happy in this particularly low growth environment won't be easy and the only real lever the company has is capital management. Clearly the company is hoping that the trick it employed in the December half of increasing dividends at a faster rate than profit growth will help – especially when one considers the number of dividend-hungry small investors that make up the Telstra share register.

The dividend ticked up 3.3 per cent in the half to December 2015. The impact on future earnings from the transition to the NBN puts an additional layer of pressure on the company to retain its market share and premium pricing on mobiles. Investment also has risks The way out of this earnings conundrum is to spend more money investing in new businesses and income streams. This strategy comes with risks, the least of which is that it takes time for new investments to start making an appropriate return – and the bigger risk is that there is a chance that some of them won't. (Having said that, to date none of the bets have been all that large relative to the size of Telstra).

This is an issue about which investment banking analysts have been increasingly concerned. Telstra takes the view that it needs to spend on its mobile network to maintain its lead as the premium network – better coverage, fewer episodes of drop outs and quicker speeds. The trouble is that its competitors have been spending as well – and at the same time engaging in a price/value war particularly around data. Need to lift its game Telstra has needed to undertake the painful exercise of making its own data more competitive, thus putting pressure on the average revenue per user and while still pouring more money into the mobile network.

Are the competitors' networks good enough that customers will not pay a premium for Telstra's better network? This must be a gamble but one the company feels it must take given the the consumer and business customer's appetite for network improvement (especially given the increased use of video) is increasing rapidly. The company is certainly experiencing some success in relation to recent acquisitions and global telco service provider Pacnet is a case in point. The development of Telstra's successful Network Application Services division is another of its success stories. But can the rising stars move fast enough the offset the NBN's structural headwinds? Broadband is a winner

Telstra is doing a good job in retaining its broadband market share and actually increasing it to more than 50 per cent on the NBN while at the same time getting a bigger bite of compensation payment from the federal government. But as Telstra's chief executive Andrew Penn readily admits, it does not make up for the loss of customer margin that Telstra wears as customers migrate. In additional it is costing Telstra several hundred dollars to migrate each customer across – an amount it is hoping can be lowered over time. Telstra is having success in taking fixed costs out of the business but it makes a relatively small dent in the overall operating expenses that were up more than 14 per cent. Loading So it looks like these "transitional" earnings are set to stay for a few years and Penn needs to manage the cash – and how much he gives back to shareholders – with precise balance.