Telstra pulls mobile plug

Telstra chief executive Sol Trujillo announced job cuts amounting to 23 per cent of the company's Australian workforce. Picture / Reuters

Telstra finally dropped the axe yesterday as chief executive officer Sol Trujillo announced 12,000 job cuts in Australia and scuttled plans for a mobile phone network in New Zealand.

The job cuts - about 23 per cent of the workforce over five years - are part of a plan to make the telco "leaner" and "more efficient", Trujillo told analysts and reporters during a six-hour strategy briefing in Sydney.

TelstraClear chief executive Allan Freeth said none of those cuts would be made in New Zealand. However, unrelated redundancies - which Freeth signalled during the Telstra subsidiary's strategic review last month - were on track.

"There's a possibility over the next month or so that there may be some redundancies, but that's not linked at all to the Telstra announcement. That was clearly in our plans anyway," he said.

Freeth said most of the New Zealand cuts would come through attrition, "and it's not in the sort of proportions we're seeing [with Telstra]".

TelstraClear has about 1500 employees. Freeth would not say how many would lose their jobs.

TelstraClear had long been expected to become the third entrant in New Zealand's mobile phone market, and so boost competition. But with Citigroup analysts pegging the cost of a network at about $570 million - and Trujillo's stated position of improving efficiency - the writing had been on the wall.

"The returns on invested capital are not good enough," Trujillo said.

Freeth said Trujillo had not rejected a mobile network, but rather had scuttled TelstraClear's current business case for it. Freeth said he had been told to "seek opportunities to be disruptive and look for break-out opportunities", but would not elaborate on what those were.

The Telecommunications Users Association was disappointed with Trujillo's decision, and said it would lead to New Zealand continuing to languish with the highest mobile charges in the OECD.

"It's extremely bad news for users," said chief executive Ernie Newman. "We're going to be doomed for a considerable time to prices that are completely out of whack with the international norm."

Trujillo, who took the company's top job on July 1, said that Telstra's earnings before interest and tax might fall up to 30 per cent in the year ending June 30, three times greater than his estimate of two months ago.

The company also cancelled the third year of its A$1.5 billion ($1.6 billion) annual capital return plan and would cap its dividend at 28Ac a share for the next three years.

Trujillo said the job cuts and A$10 billion in infrastructure spending would result in earnings growth of 3 to 5 per cent a year through to 2010.

The measures were announced as part of a company-wide review by Trujillo and come before a planned sale of the Government's A$27 billion stake in the company late next year.

Trujillo also said Telstra's fixed-line calling revenue slipped 3.4 per cent this year, accounting for more than a third of the company's overall sales of A$22.2 billion.

Analysts expect that decrease to widen as more people switch to cellphones and internet calling, with at least one saying the rate of decline could double this year.

The declining calling revenue is mirrored at telcos around the world, including Telecom.

The company's calling revenue for the year ended June 30 was down 7.3 per cent, a trend that continued in its recently reported first-quarter results.

Trading in Telstra shares was halted on the NZX yesterday. Telecom shares rose 8c to $5.94.

Lines cut

* About 12,000 jobs to be cut in Australia.

* TelstraClear is planning its own additional job cuts.

* No 3G mobile phone network for New Zealand.

* Telstra projects earnings growth of 3 to 5 per cent through to 2010.

- Additional reporting agencies