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Telstra, Australia’s dominant communications company, issued another profit warning and unveiled plans to shed a fifth of its workforce over the next five years to kickstart growth ahead of its proposed full privatisation.
Sol Trujillo, chief executive, said earnings before interest and tax could slump up to 30 per cent in the year to June 30, triple his estimate of two months ago, as the company continued to lose market share, increased its spending on new technology and began to pay for up to 12,000 redundancies.
Over the next five years Telstra will commit A$10bn (US$7.3bn) to capital spending, A$3bn more than previously reported, to upgrade its networks to provide its 8m customers with high-margin wireless and broadband services.
Mr Trujillo promised that “New Telstra” would be customer-focused with “a seamless one click, one touch, one button or one screen approach”. But he warned that the success of the investment would depend on what regulations the company would face when fully privatised.
The government plans to offload its remaining 51.8 per cent stake in Telstra late next year in a sell-off expected to raise A$30bn.
The five-year plan was designed to cut costs, improve customer focus and generate fresh revenue streams to counter the “accelerating” slump in revenues at its high-margin fixed line unit as customers switched to mobiles, the internet or rival carriers.
Telstra – which last year reported net profit of A$4.5bn on sales of A$22.2bn – boasts a market share of 60 per cent, down from 80 per cent in 1997.
Telstra capped its dividend at A$0.28 per share for the next three years and cancelled the third year of its proposed A$1.5bn annual capital return plan to investors, due by 2007.
The disclosures formed part of Mr Trujillo’s long-awaited corporate review, which he announced to analysts during a glitzy five-hour briefing in Sydney. However, analysts attending the event appeared sceptical about the company’s plans and Telstra shares closed down 7 per cent at A$4.02. The government has signalled a sell-off target price of A$5.25 per share.
News of deep job cuts re-ignited the simmering political row over the company’s privatisation, with the opposition Labor party and unions urging the government to scrap Telstra’s sale.
Senator Barnaby Joyce, whose vote last month was crucial in helping the government obtain parliamentary approval, described the job cuts as “sneaky” and feared they would affect services to the “bush”.
Telstra also announced it is to merge its Hong Kong mobile phone unit CSL with New World Mobile Holdings, creating the largest cellular company in terms of customers in the territory. Telstra will hold a 76.4 per cent stake in the joint venture.