Telstra CEO may leave this yearBy Michael Sainsbury January 14, 2008 07:20am Article from: Font size: + - Send this article: Print Email TELSTRA'S traditional fixed-line telephone and data business is about to deteriorate further amid speculation that imported chief executive Sol Trujillo may depart before the end of the year.
Telstra (tls.ASX:Quote,News) arrested the decline of its fixed-line business - which still contributes 50 per cent of its profits - with a big effort to win back customers early last year.
But that trend is now set to reverse as Australians continue their migration to mobile services and Telstra's rivals develop broadband offers using the company's copper network, according to Macquarie Securities analyst Andrew Levy.
Fixed-line revenues would continue to decline as a result of subscriber migration to mobiles and unbundled local loop services, Mr Levy said.
"We expect declines to re-accelerate compared with the June 2007 half but to remain moderate compared with declines of a few years ago.''
The new decline in fixed-line revenue is likely to be exacerbated by the competition regulator's decision last week to once again cut the price at which Telstra must rent its copper wires, in an arrangement known as the unbundled local loop.
The decision was the latest blow to a two-year-old bid by Telstra to charge its rivals a blanket $30 monthly. At present their are four geographical bands for basic network prices, and Band 2 covers about 70 per cent of the population.
The Australian Competition and Consumer Commission told Melbourne-based Primus during arbitration that it only had to pay $14.30 monthly in Band 2 - down from the previous level of $17.
The new price will be passed on to other companies.
Telstra will report its first-half results on February 21, as chief executive Sol Trujillo's five year, $12 billion "transformation'' project nears its halfway mark.
Mr Levy has tipped that the company's underlying earnings will tick up by 1.1 per cent, excluding a $100 million dividend the telco will get from its pay-TV operation, Foxtel.
"The result will highlight that wireless data revenues are now the critical driver for the group, providing more than 50 per cent of Telstra's total growth, despite being well below 10 per cent of total revenue,'' Mr Levy said.
Including Telstra's Chinese property website, SouFun, the two divisions could represent more than 60 per cent of its 2.7 per cent revenue growth, he said.
"This percentage could rapidly increase if fixed-line revenue declines were to re-accelerate, or mobile voice calling rates come under pressure,'' Mr Levy said.
Mr Trujillo outlined his blueprint for a "new'' Telstra in November 2005.
Now there is growing speculation inside the company and in financial markets that Mr Trujillo, who was brought from the US to run the company, will leave before the end of year.
He originally signed a three-year contract from July 1, 2005, but last year this was changed to a rolling, "evergreen'' deal that means Mr Trujillo need only give the telco's board 30 days notice if he wishes to leave.
At the same time he was granted a large, unspecified pay rise - opposed by shareholders - that could push his annual salary above $20 million if the company's share price rises.
Mr Trujillo, who made his name at telco US West, is believed to be keen for a second stab at running another large US company.
Telstra's share price has been hit by general market woes in the past two weeks, falling from $4.74 to $4.60 since January 2.
"Telstra's price-to-earnings multiple of 16.1 times (compared with the market ex-resources, which is trading on 15.8 times) is full, given ongoing regulatory uncertainty,'' Mr Levy said.
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