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Job, cost cuts loom large in Telstra plan

Lilly Vitorovich
Telstra will axe 8,000 jobs, sell assets and hive off its fixed network infrastructure

Telstra's plan to cut costs and set itself for a new, tougher marketplace have drawn a muted response from analysts and disappointment from investors.

The telco giant announced on Wednesday it will axe 8,000 jobs, sell assets and hive off its fixed network infrastructure as a new business in a bid to slash costs and improve performance.

Australia's oldest telco says two to four layers of management will be removed and up to $2 billion of assets sold to strengthen its balance sheet.

Chief executive Andy Penn told the company's strategy briefing day in Sydney on Wednesday that the plan is to "radically simplify" and change Telstra - which will lose 25 per cent of its 32,000 strong workforce - as it faces a changing competitive landscape.

"The telecommunications sector has never been under more pressure, with the development of NBN, very significant increase in competition and a lot of pressure to invest (in new technologies)," Mr Penn told reporters.

Analysts said a plan for Telstra was overdue but cautioned the benefits of Mr Penn's strategy would take years to materialise, leaving uncertainty that was unnerving for investors.

Telstra shares touched a seven-year low during Wednesday and closed 4.8 per cent lower at $2.77.

Analysts were also concerned about Telstra's dividend policy after the company only reaffirmed a total dividend of 22 cents a share for this year.

Patersons private wealth analyst Greg Galton said the plans were a step in the right direction but not enough in the short term, with competition set to escalate with TPG entering the mobile market this year.

"It was very much about fixing what they've already got, rather than focusing more on the growth opportunity," Mr Galton said.

"Telstra has made a habit of promising a lot out of these strategy days and really not delivering."

Telstra's new infrastructure unit, InfraCo, will provide options to either spin off as a separate company or sell a stake to a strategic investor following the rollout of NBN.

The mobile network assets will remain a part of Telstra's core customer-focused business, where the expansion of 5G technology will be a crucial factor for future services.

Telstra will slash the number of plans it offers to consumers and small businesses from the current 1,800 plans to a core of 20, in order to simplify its offering and work towards cutting customer-service calls by two-thirds by 2022.

Mr Penn declined to identify which businesses could be sold as part of plans to raise $2 billion, citing competition issues, at the group's strategy presentation in Sydney.

The company has forecast earnings of between $8.7 billion to $9.4 billion, excluding restructuring costs of around $600 million, for 2018/19, down from its recently revised guidance of $10.1 billion to $10.6 billion for the year ending June 30.