Competition is taking a toll on Telstra, with the nation's incumbent recouping only minimal market share gains as revealed in today's 2006 full year results.

Net profit after tax fell 26.2 percent to $3.18 billion. Last year Telstra's after-tax profit was $4.44 billion.

Telstra CEO Sol Trujillo said building the 3G network and broadband is key to the future growth of the carrier. Revenue from retail broadband grew 58 percent to $730 million in FY 2006, up from $463 million.

The carrier noted a 3 percent market share gain in broadband and postpaid mobile (1 percent). Revenue growth is around 3 percent in total.

However, his comments follow an announcement earlier this week that Telstra has scrapped plans for a $4 billion national high-speed broadband network after reaching an impasse with regulators over how to charge rivals for access.

A 10,000 to 12,000 headcount reduction by 2010 is also on the cards, as well as a "platform rationalization" project to reduce IT complexity.

Ovum research director David Kennedy said the challenge over the next year is to prevent tough market conditions from eating too much into profitability, while continuing to build market share and scale.

Kennedy said the long-term challenge is to offset revenue declines in the standard telephone business with broadband, mobile and Internet services growth.

But, he added, broadband will take the carrier only so far.

"The percentage growth rate [of broadband] is falling, and we believe the broadband market will go off the boil by 2008," Kennedy said.

"At that point 3G mobile, the Sensis business and Telstra's IT business must be ready to take up the slack. These businesses are generating fast sales growth off relatively low bases, and this must be maintained and even accelerated to avoid a revenue crunch in late 2007.

"We expect no let up in competitive pressure in the PSTN, mobile or broadband markets in the coming year. Nor do we expect any regulatory relief that would improve returns. But pulling out of fibre to the node has not crimped Capex, which will grow to at least $5.4 billion."