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Telstra boss outlines new threat to core busi -

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(generated from captions) reason for more time to be given

reason for more time to be given for public scrutiny and debate than the

government at this stage appears to allow. Political editor Michael Brissenden. Telstra boss Sol Trujillo has confronted plenty of new faces since he said yes to arguably the toughest job in corporate Australia. From the Prime Minister and a legion of other politicians to financial journalists and telecommunications analysts and of course Telstra executives and staff. Some have been hostile. Others prepared to wait and see

if he can lift Australia's biggest telco out of the quicksand.

Finance editor Emma Alberici reports.

We've come a long way in a

relatively short period from a time

when humans directed telephone

traffic in a frenzy of plugs and

wires on a manual switchboard and phones weren't go

phones weren't going anywhere. They

were big and clun kid fixed to a

wall or sitting a mobile on a table.

As always, though, in the course of

remarkable technical development,

the longer the distance and the

longer the call, the higher the

price. Now even that telephone

truism is becoming ancient history.

It's a sunny Sydney morning on

It's a sunny Sydney morning on Manly Beach. Resident Luke Pearce is

calling his mate Alex Hooker in

London over his broadband Internet

connection. (Phone rings) Hello.

Why, Alex. How are you doing? Very

good, very good. We had a visit

good, very good. We had a visit from your nephew the other day, young

Callum. How is the lad? Is this the

end of the line for traditional

telephone calls? The software costs

nothing to download, there are no

rental fees and depending on who

Luke Pearce calls, he'll either pay

nothing or in this case just a few

cents a minute. Bye-bye. The

computer seems the be like the

central part of a lot of households

now. It's delivering entertainment,

it's delivering communication, so

it's delivering communication, so it just seems a natural progression

just seems a natural progression now to move your telephone on to your

computer. The world of the

telecommunications business is

changing and it's changing fast. No

more so than in relation to our

fixed line business where revenues

are falling due to increasing

migration to other services, mobile

services, email, Internet and

services, email, Internet and things that some of you may or may not

that some of you may or may not have heard of like voice-over the

Internet. As customers of Telstra,

the crowd here will probably

the crowd here will probably welcome voice-over the Internet, but as

shareholders, the rise of this new

technology is all bad news.

Increasing usage of these new tell

communication services at the

expense of the traditional fixed

line is now happening not just in

Australia, but all over the world.

The heart and soul of Telstra's

business has been the fixed line.

The hard-wired home and business

phone delivers a 50% profit margin

and that's precisely what's under

attack here. What future is there

for STD and ISD when more and more

customers start to realise they can

make a call to anywhere in the

make a call to anywhere in the world for free or next to nothing? Sol

Trujillo has already presided over

Trujillo has already presided over a $10 billion plunge in the value of

the business. How the company plugs

into this latest phenomenon nom is

critical to its future. The reality

is that the game in which we

compete, the markets in which we

play, are changing. There are no

free kicks any more for any of us

free kicks any more for any of us in the market place. But it's no use

the market place. But it's no use my standing here and kind of wringing

my hands about all of. This we need

to change with the game. How do you

balance the need to blow tect your

profit margins with them merge

of voice-over

of voice-over int

profit margins with them merge jence of voice-over Internet, free

voice-over Internet offerings?

Again, Emma, the issue that voice-over int

Voice-over Internet Protocol

telephony represents is no

telephony represents is no different to what Optus has faced throughout

its 12ier life. That's different in

so far as it is free. The point is

really this: new technologies are

coming along all the time and our

job is to make decisions about

job is to make decisions about which ones we invest in and which one we

roll in our network. Australia's No.

2 telco Optus is in denial.

Regulatory chief Paul Fletcher says

his company doesn't have any plans

to offer free Internet phone calls

to consumers. He's not concerned

about the drift of VoIP, despite

about the drift of VoIP, despite the fact that Luxembourg-based Skype

fact that Luxembourg-based Skype has managed to attract 282,000

Australian users without having

Australian users without having ever advertised here. You can't compete

against free calls, though, can you?

Clearly, any business is going to

struggle to make money if you're

selling products for free. I think

it is also worth making the point,

though, that any sustainable

business model for an

business model for an Internet-based telephony operator is also going to

involve them needing to charge

involve them needing to charge their customers at some point. Nothing

customers at some point. Nothing can stay free forever. Hello. This

stay free forever. Hello. This short film is about how easy it is to use

Skype. Skype and other Internet

telcos provide the ultimate in free

speech, VoIP. Calls between Skype

users do not cost a thing. The

world's biggest provider of

Voice-over Internet Protocol allows

people to make free calls to other

Skype users anywhere in the world.

It's just two years old, but last

month EBay, the giant online

month EBay, the giant online auction house, paid $3.5 billion to but

Skype. EBay is arguably the

shrewdest Pret tor on the Web, but

it was a staggering sum to pay for

it was a staggering sum to pay for a company that brought in only $60

million in refugee you and hasn't

yet made a profit. We were

surprised, frankly, of the

valuiation that EBay put on it give

tuberculosis fact that most Skype

user don't pay Skype any money. It

seems an incredibly high sum to pay

for the company. For many analysts

it's no longer a question of

it's no longer a question of whether voice-over the Internet will wipe

out traditional telephony but how

quickly it will do so. Telstra

offers the business to its business

customers. 3,000 staff online and

all 27,000 due the hook up to the

system next year. Next year

Telstra's residential customers

Telstra's residential customers will be invited to join up but analyst

Neale Anderson said the company

Neale Anderson said the company will be sure to bundle it up rather than

risk cannibalism from other

lucrative services. Telstra and

Optus have no interest in driving

the adoption of this as they've a

lot of existing revenue streams to

protect. EBay already has 3 million

members in Australia. As they

integrate Skype into their business,

each one of them will be offered

each one of them will be offered the service. Potentially, that means

everyone with a broadband

everyone with a broadband connection be will making free phone calls

be will making free phone calls over the Internet and saving themselves

$40 a more or so in line rentals.

It's a compelling offer and one

It's a compelling offer and one that Sol Trujillo will have to match

he announces the results of the Sol Trujillo will have to match when

review next month. Good news to the

new language, VoIP, for instance,