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Tue, Sep 06, 2005 - Page 12 News List

Telstra shares take a knock after profit warning announced


Telstra shares plunged yesterday after it issued a surprise profit warning, casting a shadow over the government's plan to sell its 51.8 percent stake in Australia's biggest telephone company.

Telstra stunned the market just after trading began by saying earnings before interest and tax for the current year to June next year would be 7 percent to 10 percent down on the previous year because of falling revenue from fixed-line services and intensifying competition in the mobile-phone market.

It also said government regulations -- including new restrictions the government wants to impose prior to Telstra's full privatization -- would cost Telstra more than US$646 million in lost revenue during the year.

The news drove Telstra shares down US$0.22 or 4.8 percent to US$4.36 by 2pm, effectively slashing more than US$1.5 billion off the value of the government's stake in the company.

A month ago Telstra had warned that it expected its net profit to decline in fiscal 2006 from the US$0.45 billion reported for the previous year.

The latest warning came just as the government prepared to introduce enabling legislation to parliament this week for the Telstra sell-off, with a vote expected next week.

Prime Minister John Howard indicated last month that he hoped the actual sale of the state's share in Telstra -- then worth about US$6 billion -- would go ahead late next year.

But officials have said the sale would not go ahead unless market conditions were right and that if the Telstra share price fell too low, the government could shift its holdings into "future funds" to finance state pension plans and upgrade telecommunications networks in rural areas.

Analysts said yesterday's warning from Telstra had cast fresh doubts on the timing of the firm's full privatization.

"With earnings guidance like this, the sale of Telstra before the end of 2006 is now looking remote, and the following year, 2007, would put the sale in the run-up to the federal election," said Glenn Dyer on the crikey.com news Web site.

"The `sale,' or pushing the government's controlling stake into the Future Fund, is looking more and more an option that will be grabbed by an exasperated Howard government," he said.

Telstra's new US chief executive, Sol Trujillo, has been in open conflict with the government since taking over the company on July 1, complaining that existing restrictions and regulations planned ahead of full privatization were undermining its ability to perform.

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