Paul McIntyre: Landline cash cow is going dry

It might be time to feel sentimental about the good old telephone landline. Nearly A$2 billion ($2.18 billion) was wiped off Telstra's market value on Thursday after the telco fessed up to the fact that landline subscribers were dropping their fetish for the service in favour of mobile phones and voice over internet technologies.

Telstra's fixed-line business is still huge - it pulled in revenues of A$7.7 billion in the last financial year - but the problem is the trendline; it's going backwards at a rapid rate. Telstra's fixed-line revenues fell A$275 million in the 12 months to June and it really is a tale of two halves.

In the six months to December last year, revenues were off 1.9 per cent but in the June half the decline had accelerated to 5 per cent.

Such was the market's shock that it lopped 14Ac off the share price - 2.8 per cent - to A$4.85 - 40Ac below the Government's book value of A$5.25 for its 51.8 per cent stake.

And the news only gets worse. By 2009, Gartner Group now forecasts Telstra's fixed line business will have plummeted to about A$6 billion from A$10.6 billion in 2004.

There is truly a big shift going on in the consumer market towards mobility and it's backed up by a few minnows in the telco sector.

Earlier this week, mobile broadband service provider, Unwired, disclosed that 30 per cent of its customers did not own a landline - in August last year the figure was just 8 per cent.

Telstra's new American chief executive, Sol Trujillo, fronted journalists and analysts on Thursday with a frank admission. "Fundamentally, we can't defy the laws of gravity," he said. "But we can offset some of that in terms of some of the action that we can take in terms of innovation as well as controlling our own costs. The decline in PSTN [fixed line] voice revenue clearly needs to be mitigated through cost-reduction efforts, product innovation and an improved regulatory environment. In all candour, there is a lot of this company that we need to improve.

"Everything is under review, everything is being looked at. There's no sacred cows zero, none, nada. We have also given guidance for the coming year that we anticipate our earnings will be negative."

The timing of these announcements is a shocker for the federal Government as it pushes closer to deciding if and when it will offload its remaining stake in Telstra for about A$30 billion. Some suggest with the new revelations the stake might be worth A$25 billion.

Telstra's disclosure of the assault it faces to its landline cash cow came at the same time this week as a new rebel National Party senator, Barnaby Joyce, made his debut in the Upper House and created havoc.

Joyce is adamant any sale of Telstra must proceed on the basis of a guarantee that services in the bush will match those of urban markets - he's looking to siphon off up to A$5 billion of the Government's Telstra windfall for that purpose.

Joyce is the first Coalition backbencher in years to publicly challenge Prime Minister John Howard's agenda on where Telstra's proceeds should go. The bush, he says, should not be forgotten and because he potentially holds the balance of power in the Senate, everyone is listening.

This week, Liberal Party MPs have called him a "dopey so and so" for his pro bush stance and Howard's political enforcer, Senator Bill Heffernan, mocked Joyce openly in front of colleagues for his stance.

In his home state of Queensland, however, Joyce is turning into a hero - talkback radio was jammed with praise for the maverick. "He's on the mark. He should be the leader. He's the only one with balls," said one caller typifying the response.

The tense exchanges among Coalition members earlier in the week forced Howard to step in to create some peace, particularly with Heffernan.

"Bill is a good bloke and Barnaby is a good bloke. They're both good blokes and they're both my blokes," he said on radio.

And Heffernan followed his leader in backing off Joyce. "Everyone knows I am not a pansy and neither's Barnaby and that's all part of the colour and movement," he told Channel Seven. "Barnaby's a decent bloke, he's a man after my own heart."

There are a few very interesting weeks ahead.