Chief executive Sol Trujillo said Telstra currently has 52,000 full-time positions and this will be reduced by up to 8000 in the next three years and reach 10,000 over five years.
Trujillo announced the cuts as part of a strategic review which aims to cut costs and grow revenue.
He announced the four-month strategic review soon after joining the company on July 1, 2005.
He said the telco required a "new economic model" and by 2009 Telstra will overhaul its access network, PSTN or fixed line network and backbone infrastructure.
The upgrade will give its customers the latest voice, video and data services on a common Internet protocol (IP).
"Telstra's people are its most important asset, and the proposed new networks announced today, mean that Telstra's people will need additional skills," he said.
To provide the skills required Telstra will spend A$200 million (US$147 million) on staff training.
The telco will team with external service providers to give its workforce training in provisioning, maintaining and running next generation networks, including a high-speed IP core and its 3G wireless network.
Telstra said the new network will help reduce costs by consolidating multiple networks into one common core network. Trujillo said Telstra's third-generation wireless network is set to go national in three years.
The network currently operates only in capital cities.
Trujillo said the existing CDMA network and the Telstra and BigPond wireless broadband services will remain in place until the national 3G service has the same or better coverage and services.