Telstra posts record annual profit but fixed line under threat

Asutralian telecommunications giant Telstra Corp has posted its best annual profit ever but its fixed line earnings are under threat as customers migrate to wireless and internet products.

Australasia's largest teleco warned the trend would impact earnings and revenue in the current financial year and that it must find ways to further cut costs.

"Customers are increasingly shifting usage from higher margin PSTN services to lower margin services such as mobiles and broadband," chief financial officer John Stanhope said.

"We expect this trend to continue."

Telstra today reported an eight per cent rise in net profit to a record A$4.45 billion ($4.94 billion) for the 2004/05 year, better than analysts' expectations of a A$4.3 billion outcome.

Underlying sales revenue rose 3.7 per cent to A$21.50 billion in the year to June 30, 2005.

Telstra announced a final dividend of 14 cents and a special dividend of six cents.

Mr Stanhope said the result was driven mainly by organic growth in its broadband, mobile, advertising and directories business Sensis which helped offset a decline in fixed line product earnings.

"Underlying sales revenue for the year grew broadly in line with industry growth, which was a key goal for the company and we delivered on our commitment to reward shareholders by maximising cash returns," he said.

The industry growth rate for underlying sales is between four to five per cent.

Telstra said it expected earnings at the pre-interest, tax, depreciation and amortisation (EBITDA) and pre-interest and tax levels to fall in 2005/06.

New chief executive Sol Trujillo said new sources of revenue and further cost cuts would be needed to drive earnings growth in the future.

Mr Trujillo, who will travel to Canberra later today meet with Prime Minister John Howard, said industry regulation and competition are putting pressure on the company's margins.

The CEO has previously stated that regulations imposed on Telstra are obsolete and hamper the company's performance.

But Mr Howard maintains regulation is essential to protect regional services, while Communications Minister Helen Coonan has described Mr Trujillo's comments as unhelpful.

Mr Trujillo, who is the midst of a four-month review of the company's operations, also today announced the creation of a new position of chief operations officer at Telstra.

American executive Gregg Winn, who worked with Mr Trujillo at his former job at US West and recently joined him at Telstra to help him with his review, will take the job.

The appointment was made as group managing director of technology innovation and product, Ted Pretty, announced his decision to leave the company on August 19.

"I sincerely regret Ted's decision and thank him for his considerable contribution during his eight years at Telstra," Mr Trujillo said.

Mr Pretty was believed to have been a contender for the chief operating officer position.

- AAP