Thousands of Telstra employees are facing job losses as the company announces an overhaul, but investors remain concerned by falling profits, sending the telco's shares to a fresh seven-year low.

Key points: Telstra to cut 8,000 jobs over the next three years

Telstra to cut 8,000 jobs over the next three years Telco will split off fixed-line assets into a separate, wholly owned subsidiary called InfraCo

Telco will split off fixed-line assets into a separate, wholly owned subsidiary called InfraCo Telstra shares touch a fresh seven-year low of $2.695 in early trade

Telstra said it is targeting a further $1 billion in cost-cutting by the 2022 financial year, taking total cost reductions to $2.5 billion.

The telco said there would be a net reduction of 8,000 employees and contractor positions.

It said those positions would largely be drawn from management, with one-in-four executive and middle management positions to go.

Telstra's chief executive Andy Penn said the company had to take drastic action to stay on top in an increasingly competitive telecommunications market.

"We are now at a tipping point where we must act more boldly if we are to continue to be the nation's leading telecommunications company," he noted in a statement to the share market.

"We are creating a new Telstra that is able to continue to lead the market.

"In the future our workforce will be a smaller, knowledge-based one with a structure and way of working that is agile enough to deal with rapid change."

Prime Minister Malcolm Turnbull described the announcement as "heartbreaking" for the workers involved, but said he was confident most would find other jobs.

"I have spoken with the chief executive about this last night. Telstra is putting in place a fund, as you know, to support workers over this time," he said.

"While one company reduces its workforce, there are are other companies and new companies, including other telecommunication companies, creating new opportunities and jobs."

Telstra said it would achieve part of the cost-saving by switching customers from 1,800 current consumer and small business plans to just 20 plans.

It also aims to eliminate the need for two-thirds of customer service calls within the next two years.

Despite the massive cost-cutting, Telstra insists it will remain a "premium" telecommunications brand and lead in the roll-out of 5G mobile networks.

Telstra undertakes its own structural separation

The other major aspects of Mr Penn's plan are up to $2 billion in asset sales over the next two years and the structural separation of Telstra into "InfraCo" and retail businesses from July 1.

InfraCo will be wholly-owned by Telstra, at least initially, but would provide the ability to demerge it and sell it off or attract a strategic investor.

The infrastructure company will control all of Telstra's fixed network infrastructure, not mobile, including data centres, non-mobile-related fibre networks, copper, HFC cables, international subsea cables, exchanges, poles, ducts and pipes.

Its services will be sold to wholesale customers and NBN Co and Telstra said InfraCo would have an initial book value of around $11 billion.

Telco analyst Mark McDonnell applauded the split-off of the fixed-line assets into a separate company, saying it would position Telstra to participate in a future privatisation of the National Broadband Network.

But he urged the company to go further in selling off non-core businesses to reduce its "stigma" as an ex-monopolist, which results in the Australian Competition and Consumer Commission (ACCC) blocking many potential domestic acquisitions.

"There is the potential for restructuring to enable existing growth businesses to shine and release Telstra from the shackles of the ACCC," he said.

Why Telstra shares are falling despite cost cuts

Ahead of today's annual investor briefing, analysts were speculating about what Telstra may announce to turn its flagging fortunes around.

Eric Pan, the telco analyst at JP Morgan, had upgraded his outlook on Telstra's share price to positive with a price target of $3.30, well above its current price of $2.91.

That upgrade was based on between $500 million to $1 billion in extra cost cuts and new customer product offers, including more competitive bundles of entertainment, mobile and fixed line services.

Mr Pan also estimated that a surprise move, such as structural separation, could yield more than 50 per cent share price upside.

Yet Telstra shares fell as much as 7.4 per cent today, to a fresh seven-year low of $2.695 shortly after the open.

The shares were down 5.5 per cent to $2.75 by 1:55pm (AEST).

It continues a vicious downward trend since Andy Penn took over as chief executive in early 2015.

Mr McDonnell said the market would be pleased by the cost-cutting and separation of the fixed-line infrastructure, but sentiment would be outweighed by a 20 per cent fall in pre-tax profit from around $10 billion to $8 billion.

"The certain bad news is outweighing the possibility of future better news," he said.

"The market's very short-term in its thinking.

"The dividend story is over and its far from clear they have a growth strategy."

Loading...