Telstra stunned the market just after trading started this morning with this report
that earnings this year would be 7-10% down on a year ago – a piece of
news that drove the Telstra share price down 22c to $4.36 on more than
92 million shares in morning trade. The shares had been as low as $4.32.

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. 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.

Telstra management blamed “accelerating declines in
PTSN revenues (home phones and STD calls) and softening growth in the
mobiles market due to aggressive pricing and ‘bucket plans.'” In other
words, competition hurts.

This morning’s bad news follows reports in almost every major newspaper this morning about Telstra, with The Australian leading with this page one splash, the Financial Review also topping page one with a story about how Telstra would control rivals’ network access and The Sydney Morning Herald offering a yarn on the Telco’s soft start to its new 3G service.

Since
CEO Sol Trujillo launched his war of words with Canberra and Telstra’s
critics the share price has fallen from more than $5 to today’s price
levels. If this was an American company it would probably now be facing
legal action from upset shareholders in a class action.

No
wonder Phil Burgess, Sol’s communications guru, wouldn’t recommend
Telstra shares to his mum. Did he tell her last week that an earnings
downgrade was coming soon? And does that make him an ‘insider’ by
imparting knowledge not widely held by the market?