shares have received a hiding in recent years. Falling fixed line margins and
greater competition in mobile services are starting to eat away at Telstra’s
bottom line. Things have gotten so bad that Telstra boss, Sol Trujillo, recently
threatened that he may have to slash
Telstra’s dividend
, which is currently the only thing keeping the share
price above $3.

is difficult to think of any industry that is facing so many threats to its very
existence as the telecommunications sector. It has been well publicised that
Telstra (like other fixed line operators) is facing huge peril from voice over
internet protocol (VoIP). Companies like Skype are able to provide free
international voice to other computers and charge far less than traditional
carriers to mobile phones or fixed lines by using broadband internet. It is not
unthinkable to suggest that within five to ten years,
very few people will be using fixed line phones. As noted by Alan
in The Smage, “a
copper Telstra in ten years is unthinkable.” It is amazing to think that not too
long ago, almost all Telstra’s revenue came from fixed
line telephony services.

VoIP companies such as Skype have received a great deal of attention recently, a
new front for Telstra is the threat
to mobile phone revenues
. This threat was well illustrated by Mark Halper in
Fortune (June
26, 2006).
Mobile telephony services have been one of the few areas where Telstra (and its
major competitor Optus) has been able to achieve earnings growth in recent years
(and an area where the phone companies hope to earn a lot more from in coming
years with the take-up of the 3G network). For the six months ending
December 2006,
Telstra recorded mobile phone revenue growth of 4.6% despite encountering a
10.3% drop in net profit. However, as with fixed lines, the phone companies’
stranglehold over cellular calls could be rudely disrupted. As noted by

and Motorola have stated their intention to preload Skype onto some handsets,
and chips that most handset vendors are starting to add will route VoIP calls
around traditional mobile networks. In a move that could further shake up
operator economics, Google is rumoured to be readying a handset that routes
Internet calls and data over Wi-Fi (or even cellular networks) that are free to
consumers who agree to receive advertising on their handsets.”

effect, what Harper is suggesting is that mobile phone manufacturers could turn
mobiles into mini-computers which are able to use VoIP software to eradicate the
need for phone companies at all. It was enough for Telstra to have their fixed-line lunch cut by
But the ability for Nokia to combine with Google and Skype and totally squeeze
out phone companies from its key profit driver is a thought that would make any
Telstra executive shudder.

CRIKEY: Meanwhile, speaking of tough times for Telstra execs, why not see if you could do any better. With Nokia’s Net Tycoon game you get to be CEO of your very own telco.