Telstra bites the bullet over market share

The telecommunications giant yesterday revealed a 4.7 per cent decline in post-tax profit from $4 billion to $3.88 billion, driven by a $504 million decline in revenue from the copper telephone line.

Traders punished the company for predicting a "high single digit" fall in profit next year and for releasing weak financial results. Shares fell 31?, or 9.5 per cent, to close at $2.94, the lowest price in four months.

Telstra will focus on winning and retaining customers by improving customer service, cutting costs and lowering prices. It estimates next year's revenue will be flattish and free cash flow could fall from $6.2 billion to $4.5 billion.

"We are making some tough decisions here and they have been debated and thought through for a number of months now because this is a big decision about being more competitive, of really going after customers and that is very important," Mr Thodey said yesterday.

"Therefore, short term, there is an impact. However, over the long term we are going to see an improvement . . . Sometimes you have just got to bite the bullet and then you go forward."

Analysts were sceptical about the plan and questioned whether Telstra could maintain its annual 28? dividend with falling income.

In our view, the market is likely to price the stock at 10 to 11 times 2010-11 earnings per share, implying a trading range of $2.60-2.95, an analyst at Goldman Sachs, Christian Guerra, said.

Of more importance is the dividend. If the market concludes that 28? is not sustainable, then the stock may trade at the bottom end of this range. Telstra will outline details of the transition to shareholders in late September, when the national broadband networks future is more certain. The Coalition has promised to scrap the project if it wins government on August 21, which would see Telstra remain a wholesale and retail company owning an ageing fixed telecommunications network.

Income from fixed telephone lines fell by 8 per cent over the last financial year as 326,000 customers ditched the old technology. About 12 per cent of households in Australia were now mobile-only, the chief financial officer, John Stanhope, said.

Revenue from fixed lines fell 8 per cent to $5.8 billion and revenue from calls on the fixed network fell by $188 million.

Revenue from mobile services increased 5.9 per cent to $6.5 billion driven by substantial growth in revenue from mobile broadband, messaging and data downloads on smartphones.

The T-Hub and T-Box products are designed to encourage customers back onto the fixed line services, and Telstra now has 50,000 and 15,000 customers, respectively, of each.

The biggest asset that Telstra has is our customer base. And we have been losing too many customers, Mr Thodey said.

We have been losing market share. We have got to get it back up to retain and then get some more, that is what we are doing. If you look at Optuss results they are still picking up share in mobiles and I dont like it. I dont like it. Income for Telstras marketing subsidiary Sensis fell to $2.2 billion due to one-off costs of disposing and acquiring businesses.

The profit margin increased to 54 per cent.