The Association of U S West Retirees



Telstra's Profit Falls 20% on Costs Of Overhaul, but Outlook Is Raised
By Lyndal McFarland
The Wall Street Journal
Thursday, February 15, 2007

SYDNEY, Australia -- In its first result since being freed from government ownership, Telstra Corp. said first half-profit fell 20%, hurt by restructuring costs, but the Australian telecommunications group boosted its full-year outlook as it takes market share from rivals.

Telstra, led by former U.S. West chief Solomon Trujillo, is in the middle of a five-year transformation plan, which includes massive investments to upgrade networks as well as wide-reaching layoffs.

Telstra said net profit in the half fell to 1.7 billion Australian dollars (US$1.33 billion) from A$2.14 billion. Revenue rose 2% to A$11.65 billion from A$11.42 billion.

"We are on or ahead of our transformation plan on all fronts," said Mr. Trujillo.  "We are winning where it matters -- in 3G, broadband and digital online offerings," he said.

Telstra now expects full-year earnings before interest and tax to grow 3% to 5%, up from its previous estimate of 2% to 4%.  It also raised full-year revenue-growth estimates to a range of 2.5% to 3% from a prior range of 2% to 2.5%.

Investors welcomed the upgrade, which comes less than three months after the A$15.5 billion share sale last year that removed Canberra as the majority stakeholder in Telstra.

Telstra's mobile revenue rose 12% to A$2.8 billion and Mr. Trujillo said 707,000 "high-calorie" third-generation mobile subscribers were added during the half.  He said the group has signed up 415,000 subscribers to its recently launched Next G 3G network.

Telstra also added 331,000 broadband subscribers, taking its market share to 45%, with retail broadband revenue rising to A$497 million from A$166 million a year earlier.

Meanwhile, the decline in its fixed-line revenue slowed to 5.6% from 7.6% a year earlier.

"There has been a change in momentum in the fixed-line business," said Mr. Trujillo, who joined Telstra in July 2005 and whose cost cuts and challenges to regulators have drawn considerable criticism from lawmakers.

Write to Lyndal McFarland at