Print

Mail

wiki links

Market pans Telstra plan to cut jobs

Telstra shares fell almost 7 percent yesterday after Australia's largest telecoms company unveiled plans to slash up to 12,000 jobs, or almost a quarter of its workforce, ahead of full privatization.

Telstra's recently-arrived US chief executive Sol Trujillo said costs at Australia's largest communications firm were too high and a new business model was needed to thrive in an increasingly competitive environment.

But the market responded negatively as Trujillo used his presentation to deliver the third profit warning of his four-month tenure, with shares tumbling when trading resumed after the investor briefing ended.

Telstra's stocks have now plummeted 20 percent since Trujillo took over in July.

Short-term pain

"This has not been a fun ride if you have been a shareholder of Telstra, it's been an uncomfortable ride," the former head of French mobile operator Orange acknowledged.

Trujillo signaled there would be further short-term pain if he was to turn the company around, warning pre-tax earnings were expected to fall 19 percent to 24 percent this financial year, partly as a result of a massive redundancy strategy.

"We're going to be reducing the full-time-equivalent head count between 6,000 and 8,000 over the next three years and between 10,000 and 12,000 over a five year period of time," Trujillo told analysts.

Telstra has about 52,000 full-time employees.

But analysts said that Trujillo's recovery plan was predictable and failed to outline the strong growth demanded by the market.

"[It's] hardly sexy stuff and it's only achievable with a lot of hard work and `reasonable' regulation," independent broker Marcus Padley said in a newsletter to clients.

Trujillo took over with a brief to streamline Telstra in preparation for the government's planned sale of its remaining 51.8 percent stake in the company, which is expected to raise more than A$30 million (US$21.75 million).

Fixed-line dependence

Since taking the helm, he has repeatedly warned of the need for change because of falling revenue from fixed-line services -- traditionally the firm's major earner.

Competition in the mobile phone market has also intensified, while Trujillo has identified broadband Internet services as a major growth focus.

"We need to create new revenue streams and we're going to be passionate about that," he said. "The good news is I've had experience doing that in the States, I've had experience doing that in Europe and other countries and it is do-able when you really understand customer needs."

"Clearly we're going to have to cut costs, the cost structure of this business is too high and I like having the flexibility of the lowest cost structure," he said.

Community and Public Sector Union assistant national secretary Stephen Jones said Telstra's plans were an outrageous attack on workers and called for the government to intervene.

"If this is the price of privatization then the price is too high for Australians to be expected to pay," Jones told reporters.

However, conservative Prime Minister John Howard said Australia's strong economy meant retrenched workers now had a better chance of finding new jobs than if they had been sacked a decade ago.
This story has been viewed 1252 times.