Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY), the dominant telecom Down Under, is close to realizing the AUD11 billion promise of its arrangement to transfer fixed-line infrastructure and customers to seed the National Broadband Network (NBN).

Only the Australian Competition and Consumer Commission’s (ACCC) approval of the company’s “structural separation undertaking” (SSU) remains before management and the board of directors can take up, with consequence now, the question of how to spend its bounty. This approval, according to statements made by members of the ACCC itself, should be forthcoming sometime in February, though probably not before Telstra reports fiscal 2012 interim results next Thursday, Feb. 9.

But when the decision comes Telstra won’t have the pleasure of receiving a giant AUD11 billion check, like those you seen presented to lottery and golf tournament winners.

Rather, this AUD11 billion will be paid over decades, about 30 years, commencing this year with AUD90 million for infrastructure leasing payments and about AUD100 million for transferring customers. Exact figures depend on the schedule according to which the NBN is rolled out across Australia, but the payments will increase and then stabilize over about 10 years.

CEO David Thodey, in recent interviews focused on the impending completion of the long-gestating NBN deal, has hinted that he and the board are sensitive to the desires of the company’s relatively large base of retail investors, many of whom rely upon Telstra’s dividend for income in retirement. The institutional side is also clamoring for some sort of return of capital to shareholders in calendar 2012, assuming the NBN deal is completed.

Telstra hasn’t boosted its dividend since 2005. The corollary to that–an important one–is that neither has it cut its dividend, ever, since it first declared one in the mid-1990s, a period that includes the Great Financial Crisis. Management has committed to paying AUD0.28 per share per year for each of fiscal 2012 and fiscal 2013.

Although discussion about Telstra’s “capital management” plans has focused almost entirely on special dividends and/or stock buybacks, it’s important to bear in mind that Telstra’s competitive advantage is based on its ability to invest in and expand its network in order to satisfy the seemingly ever-increasing data demands of its wireless customers.

Technology and infrastructure and management’s ability and willingness to regularly devote about 14 percent of annual turnover–or AUD3.5 billion–toward improving them go a long way to explaining Telstra’s ability to attract and hold onto highly desired post-paid wireless subscribers.

Telstra’s success following approval of its SSU will now depend more on its sales and marketing efforts, as it competes for retail customers in the wireless space. One thing it brings to the competition is overwhelming scale, comparable in relative terms to what AT&T (NYSE: T) and Verizon Communications (NYSE: VZ) enjoy in the US. Telstra continues to beat pretenders to its throne where it counts most these days: on the post-paid wireless subscriber playing field. During the quarter ended Sept. 30, 2011, Telstra’s “services in operation” count grew by 450,000 to 500,000.

SIO is a rather broad measure that essentially amounts to a count of SIM cards in devices tied to Telstra. It’s not a straight-up tally of customers. Nevertheless, Telstra’s additions dwarf top competitor SingTel Optus’ 131,000 and shine in comparison to VHA’s 54,000 SIO losses. In short, though, Telstra is increasing its share of SIO as well as of the dollars Australians spend for telecom services.

There are risks with Telstra, which engages European credit markets as much as any other Australian company. Sovereign debt concerns on the Continent have stoked new worries of frozen credit markets, though Telstra’s solid balance sheet should allow it to glide above any turmoil. Telstra’s strong cash flows have meant it’s never had any problem raising debt. And the situation in Europe “doesn’t change anything we have done,” noted Mr. Thodey. “As we look at raising debt for this year we still are comfortable with what our parameters are and what we need to do.”

Telstra raised EUR750 million in Europe with a 3.75 percent bond due May 2012, at the end of 2011, at 145 basis points above the benchmark mid-swap rate, when markets were threatening to collapse amid a surge in Italian bond yields. The current yield on this issue is 3.63 percent. Telstra last raised debt capital in Europe in October 2011, via a EUR500 million bond maturing in 2011 and priced at 3.625 percent. That bond has a current yield of 3.51 percent.

The company also faces additional regulatory risk that would see government, in effect claw back some of the AUD11 billion its paying Telstra for the key elements to get the NBN off the ground. The Australian communications ministry recently proposed steep increases for new and renewed spectrum licenses. If the proposal is accepted as is Telstra will probably have to add, according to an estimate by Fitch, about AUD200 million to AUD250 million to capital expenditure budget for fiscal 2013.

However competitors are likely to face similar costs. The question will be whether to pass these new costs on to customers or to absorb them in an effort to grab market share.

Telstra’s original 800 megahertz of licenses cost about AUD300 million in the late 1990s, substantially lower than what European telcos were paying for spectrum at the time. The company’s fiscal 2012 capital budget of AUD3 billion includes about AUD500 million to AUD600 million; Fitch estimates this figure must increase to about AUD785 million to accommodate an enacted telco ministry proposal.

But once the NBN is finalized Telstra will no longer be subject to Telstra-specific regulation. It has the cash flow to cover the increased license fees, and any other threats the government may represent to cash flows can likely be easily passed off to its large customer base; these folks are unlikely to notice nor be terribly upset by incremental increases to tariffs built into their rates–provided Telstra is able to provide the data to power music, movies, messaging and more on ever-more powerful smartphones and tablets.

Telstra has long shown an ability to invest in its network at the same time it’s paid a generous dividend. For example it will be the first Australian telco to roll out a fourth-generation (4G) network service in the country. This advantage will bear a lot more fruit once Apple (NSDQ: AAPL) introduces a 4G capable iPhone Down Under.

The stock is up 34.5 percent over the trailing 12 months, its 20 percent-plus price rise on the Australian Securities Exchange (ASX) augmented by the aforementioned AUD0.28 per share dividend and 5 percent appreciation of the Australian dollar against the US dollar over the same time frame.

Telstra will report fiscal 2012 interim results–for the six months ended Dec. 31, 2011–on Feb. 9. We aren’t likely to know for sure that the ACCC has approved the company’s separation plan, but we’re likely to be confirmed in our view that Telstra is on track to continue to add more than its share of the high-value post-paid wireless subscribers.

Its robust network serves a high-quality customer base. This customer base–mostly long-term, post-paid subscribers–produces predictable cash flow. These customers don’t mind paying more for good service, so Telstra must balance the demands of shareholders in addition to customers. And management is also likely mindful of credit raters such as Fitch, which doesn’t favor a large, one-time outlay, either in buyback form or through a special dividend, because of the potential negative implications for a stable model built on network investment.

What remains the key factor is Telstra’s continuing strength as an operating business. The ability to compete on service terms rather than solely on price terms helps Telstra attract and keep highly sought post-paid wireless customers, the key to sustaining and growing the business over time and returning wealth to shareholders. The AUD11 billion soon to be due Telstra should help it maintain its current dominant position within Australia’s telecom industry, sustain a dividend that at current levels equates to an 8.5 percent yield and continue to push its technology edge.

Satisfying increasing demand for good wireless connectivity–in Australia or anywhere else on Earth–is about network strength. And right now that’s Telstra’s competitive advantage.

The Roundup

The first Australian Edge Portfolio Holding to report numbers this earnings season is one of the two most recent additions to the lineup. New Aggressive Holding Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY), added in the January issue, reported fourth-quarter results on Jan. 24 and also provided a preview of full-year 2011 results; the complete set of financials will be released Feb. 21.

Apart from the earnings releases, the stock suffered a steep single-day decline last week because of a landslide that caused the deaths of 60 people near construction site for Papua New Guinea Liquefied Natural Gas (PNG LNG) project. Work is already back underway, but the accident will draw new scrutiny from local groups unhappy with the impact of the project on their communities. Management’s forecast for first output from PNG LNG remains 2014.

Annual sales for the year ended Dec. 31, 2011, were USD732.9 million, up 25.6 percent versus 2010 revenue of USD691.8 million and better than the highest estimate provided by a group of analysts surveyed by Bloomberg, as strong oil prices more than offset a 10.6 percent decline in sales volumes.

Production of 6.7 million barrels of oil equivalent (MMboe) hit the upper end of management’s 6.2 to 6.7 MMboe guidance. Management maintained its 2012 forecast at 6.2 to 6.7 MMboe, and reiterated a prior prediction that output would likely remain flat through 2013.

Fourth-quarter oil production was 1.64 million barrels (MMbbl), up 10 percent from the third quarter, while 1.59 MMbbl of oil were sold during the period. The average oil price realized for the quarter was USD113.54 per barrel, 3.4 percent lower than in the third quarter of 2011. This took the average realized oil price for the 2011 full year to USD116.09 per barrel, a 44.8 percent increase from 2010. Oil Search remained unhedged during the period.

Total operating revenue in the fourth quarter was USD201.5 million, 25.8 percent higher than third-quarter revenue of USD160.2 million.

Recent exploration successes and appraisal drilling within the company’s oil fields provide good reason to forecast the company will be able to offset natural field declines, but output will be affected by processing facility shutdowns. But these shutdowns will enable work at the key USD15.7 billion PNG LNG project.

Management provided the following update on PNG LNG with its fourth-quarter earnings release:

Good progress was achieved on all Project elements during the fourth quarter. Major earthworks are well advanced while facilities and associated support construction is also progressing well. Project milestones achieved during the period included the commencement of the offshore pipelay and the arrival of the first foundation piles at the Hides Gas Conditioning Plant site.

We are pleased that the Operator has recently confirmed the Project is on track for first gas in 2014. In addition, apart from a USD0.7 billion foreign exchange impact, the Operator has confirmed that the budget is largely unchanged, despite the significant cost pressures facing the LNG industry in general. Oil Search is amply funded to meet its modest equity share of the foreign exchange related increase in the budget.

As previously noted, Oil Search will release its full financials for the year ended Dec. 31, 2011, on Feb. 21. Management did note in its fourth-quarter release that operating costs per barrel equivalent are expected to approach the “upper end” of a prior guidance range of USD19 to USD21 per barrel of oil equivalent, primarily due to higher maintenance and life extension costs, localized inflation in Papua New Guinea and foreign exchange impacts.

As of Dec. 31, 2011, Oil Search had USD1.04 billion in cash, excluding joint venture balances, compared to USD1.10 billion at the end of September. USD1,747.6 million had been drawn down from the PNG LNG project finance facility by the end of the period, while Oil Search’s revolving oil facility, which had a commitment limit of USD246.5 million at the end of December, remained undrawn.

Oil Search spent USD35.3 million during the quarter on exploration and evaluation activities, USD382 million on PNG LNG and USD30.5 million on oil field development work.

Analysts remain bullish on the stock, with 14 rating it a “buy,” two calling it a “hold” and one saying “sell.” We like it because it provides relatively low-risk, pure-play exposure to the high-quality PNG LNG project, which is in construction, fully contracted and financed and operated by a competent company like Exxon Mobil (NYSE: XOM).

Oil Search remains a buy up to USD8.

Following are dates (confirmed, tentative or estimate) for each Holding’s next earnings announcement.

Conservative Holdings

• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–Feb. 23, 2012 (confirmed, FY 2012 interim, end 12/31/11)
• APA Group (ASX: APA, OTC: APAJF)–Feb. 22, 2012 (confirmed, FY 2012 interim, end 12/31/11)
• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–May 2, 2012 (confirmed, FY 2012 interim, end 03/31/12)
• Cardno Ltd (ASX: CDD, OTC: COLDF)–Feb. 15, 2012 (estimate, FY 2012 interim, end 12/31/11)
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–Feb. 22, 2012 (confirmed, FY 2012 interim, end 12/31/11)
• Envestra Ltd (ASX: ENV, OTC: EVSRF)–Feb. 23, 2012 (confirmed, FY 2012 interim, end 12/31/11)
• M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF)–Feb. 26, 2012 (confirmed, FY 2012 interim, end 12/31/11)
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–Feb. 9, 2012 (confirmed, FY 2012 interim, end 12/31/11)

Aggressive Holdings

• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–Feb. 8, 2012 (confirmed, FY 2012 interim, end 12/31/11)
• GrainCorp Ltd (ASX: GNC, OTC: GRCLF)–May 22, 2012 (confirmed, FY 2012 interim, end 03/31/12)
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF)–Feb. 17, 2012 (estimate, FY 2012 interim, end 12/31/11)
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–Feb. 10, 2012 (confirmed, FY 2012 interim/Q2, end 12/31/11)
• New Hope Corp Ltd (ASX: NHC, OTC: NHPEF)–Mar. 27, 2012 (estimate, FY 2012 interim, end 01/31/12)
• Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–Feb. 1, 2012, AE Weekly
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–Feb. 23, 2012 (confirmed, FY 2012 interim, end 12/31/11)
• Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–Feb. 9, 2012 (confirmed, FY 2011 final, end 12/31/11)