Ovum research director David Kennedy, said Telstra is on track to achieve its 2010 targets following the release of its half yearly earnings which show a better than expected result.

Telstra today announced earnings before interest and tax (EBIT) ahead of guidance for the half year ended 31 December 2006 - a decline of 15.7 per cent or $546 million to $2.9 billion, better than the expected 17 to 20 per cent fall detailed in the T3 prospectus.

Profit after tax was $1.7 billion, down $430 million or 20.1 per cent on the prior corresponding half year. As expected, these results were affected by transformation costs and other one-off factors that will be more than made up in the second half.

Telstra CEO Sol Trujillo, said the telco is only 13 months into a five year transformation.

"However, with 47 months to go, we have reached the pivot point, with positive earnings growth to recommence in the second half," Trujillo said.

"We are on or ahead of our transformation plan on all fronts. Our financial performance is ahead of guidance. We are winning where it matters - in 3G, broadband and digital online offerings.

"We have slowed the PSTN decline."

Revenue grew 2.0 per cent compared to the first half of last year, though rising transformation costs pushed half-yearly profit down 20.1 per cent.

Transformation costs are expected to peak this year, and the cost-cutting effect of the transformation is expected to show itself towards the end of 2007.

"This means that profitability and cash flow improvements will flow through beginning in 2008, leaving Telstra on track to achieve its 2010 targets," according to Trujillo.

Ovum's Kennedy said that in the mobile market Telstra delivered impressive top-line results.

He said total connections were up four per cent to 8.9 million, increasing Telstra's market share while 3G connections (including Next G) increased to 1.2 million.

However, Kennedy said the traditional fixed phone service has taken a battering in recent years, and this will continue.

Broadband has been a bit of a success story with Telstra improving market share from 44 per cent to 45 per cent.