"The trends of decelerating revenue growth, PSTN erosion and accelerating costs evident in the second half of fiscal 2005 have continued, producing an earnings decline in line with our negative guidance. We are hard at work rebuilding the company and we are making progress on the strategic plan announced on November 15 2005, but it will take time to have a significant impact on our figures," Telstra chief executive officer, Sol Trujillo, said in a press statement.

Telecommunications analyst Paul Budde said there are no surprises in Telstra's financial results announced today and said this was the first decline in profit of many more to come.

"This is the first year of decrease in profit and not the last. It was obvious Telstra could not have these monopolistic profits for much longer, but even after this decline it still has among the highest telco profits in the world, so there is still a long way to go for Telstra to fall in line with the rest," Budde said.

While total income (excluding finance income) grew by 1.9 percent or A$218 million to A$11.6 billion due to increases in broadband, mobiles, IP solutions, advertising and directories and pay TV bundling, this was offset by a decline in revenues from PSTN calling products, specialized data and ISDN products.

Total expenses (before finance costs and income tax) increased by 6.3 percent or A$480 million to A$8.1 billion, due mainly to increased labor costs, goods and services purchased, depreciation and amortization and other expenses supporting revenue growth both domestically and overseas.