Telstra may have to cut its generous dividends and reduce retail prices in coming years as the government-owned national broadband network takes away up to 5 per cent of its annual revenue, according to Moody's Investor Services.

The telco will have to reduce debt to maintain its credit rating, and the best way to do that would be to hold on to more of its earnings, the ratings agency said in an analyst note published Thursday morning.

Telstra will still be the biggest company, but its position is weakening because of the national broadband network. Credit:James Davies

Telstra currently enjoys an A2 credit rating, one of the best in the world for big, incumbent telecommunications companies. But its rating is at risk, says Moody's, if it cannot permanently fill an earnings gap of up to $3 billion caused by the NBN by finding new revenue streams and boosting existing ones.

Telstra shares were trading at $5.69 around lunchtime on Thursday, down from an 11-month high of $5.83 last week.