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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 lyndal.mcfarland@dowjones.com

http://online.wsj.com/article/SB117150904965909491.html?mod=telecommunications_primary_hs