Telstra shares dive 7% after profit drop

Shares in Telstra Corporation Ltd have dropped by more than seven per cent after it reported a fall in annual net profit and forecast lower earnings for the year ahead.

After opening at $3.25 Telstra shares slumped as low as $2.99, and at 1023 AEST were down 23 cents, or 7.08 percent, at $3.02, the lowest since June 1.

The country's largest telco reported a net profit of $3.883 billion for the year to June 30, down 4.7 per cent from $4.073 billion in the previous corresponding period.

It was again hurt by the falling use of fixed phone lines, with revenue from the public switched telephone network (PSTN) down by eight per cent from the previous year to $5.83 billion.

There was a 4.2 per cent drop in retail lines in the year, equivalent to 326,000 cancelled fixed lines, Telstra said.

Fixed internet revenue also fell, down 0.7 per cent from the previous year to $2.14 billion.

Intensifying competition saw about 19,000 retail fixed broadband customers lost in the year, despite the introduction of new products such as the T-Hub and T-Box.

Chief executive David Thodey said the 2010/11 financial year would be a transition year for Telstra, with investment to be made to improve customer service and satisfaction and simplify its business.

Work will also be done to improve new revenue streams that compensate for reductions in traditional fixed revenues.

"Today the greatest asset that Telstra has is our customer base and we have been losing too many customers," Mr Thodey said.

"I am not going to allow it to continue."

As a result of the investments to be made in the transition, earnings before interest, tax, depreciation and amortisation (EBITDA) are forecast to fall by a high single digit percentage in 2010/11.

EBITDA in the year to June was down 0.9 per cent from the previous year to $10.85 billion.

Revenue is forecast to be "flattish", while the customer base will increase.

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