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Telstra Lifts Year Profit Forecast, Shares Rise

Telstra Corp, Australia's largest phone company, raised its 2008 profit forecast and its long-term growth estimates as cost cutting and increased revenue from 3G mobile phone use boosted its outlook, sending its shares up 2 percent.

The former government-owned monopoly is two years into a five-year overhaul to slash costs, boost margins and reduce dependence on shrinking revenue from fixed-line phones.

"Analysts have been a bit skeptical about their ability to achieve those long-term objectives, but Telstra has been delivering and I think you will get some upgrades," said John Grace, portfolio manager at Ausbil Dexia, which is overweight in Telstra shares.

"Very few companies even give those sort of long-term valuations, and Telstra has generally been able to upgrade those targets at the margin," he said.

The company said on Thursday it had lifted its long-term objectives for both revenue and earnings before interest, tax, depreciation and amortization (EBITDA) growth to a range of 2.5-3.0 percent a year, up from a previous forecast of 2.0-2.5 percent.

It increased its forecast for full-year earnings before interest and tax (EBIT) to a rise of 5-7 percent in fiscal 2008, from 3-5 percent forecast in August. It said then it was being conservative because of regulatory uncertainty.

A general election is due later this month, and both the government and the Labor opposition have promised to open up to rivals a tender to build a high-speed fibre broadband network.

"Ahead Of Plan"

Chief Executive Sol Trujillo hoped the upgrades would allay some of the skepticism about the five-year overhaul. "We are ahead of plan on all fronts," he told the company's annual investor
briefing, which was scheduled to last for seven hours. "We expect to continue to exceed market pessimism in the coming months," he added, referring to criticism from some analysts about the pace of the overhaul.

Telstra's shares rose 1.5 percent to A$4.75 in midday trade after the profit upgrade, after touching a high of A$4.78.

Telstra said the 5-7 percent profit growth forecast includes a A$100 million (US$93 million) distribution from the pay-TV business Foxtel, of which Telstra owns 50 percent. Excluding the Foxtel distribution, underlying EBIT is expected to rise 4-6 percent, Trujillo said.

Analysts expect EBIT to rise 6.7 percent to A$6.187 billion, according to a Reuters Estimates survey of 13 analysts.

Trujillo also told the briefing Telstra had arrested a long-running decline in fixed-line phone revenues in the first quarter of its fiscal year.

He said high-margin, retail fixed-line revenue showed a small positive in the three months to September. That compares with a decline of 2.5 percent in the six months to June and a 5.6 percent decline in the six months to December 2006.

Telstra expects high-revenue 3G mobile phone subscribers to increase to 50-70 percent of total mobile subscribers by 2010.

Trujillo said Telstra was two months ahead of schedule on a simplified IT and billing system, which was switched on last weekend.

Telstra's shares have recovered from losses posted since the release of 2007 profit numbers on August 9, and are up 14 percent this year. But the shares have yet to regain all the losses made since Trujillo took over in July 2005 and the stock was trading above A$5.

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