Telstra has seen a drop in landline earnings

The announcement was made by chief executive Sol Trujillo, who said up to 12,000 jobs could go in the shake up.

Telstra has been hit by declining revenues from landline operations, and is aiming to refocus on its broadband and mobile phone services.

The government is to sell its remaining 52% stake in the firm next year.

"The cost structure of this business is too high... end of story," said Mr Trujillo, who took over back in July.

Reduced profits

"We're going to be reducing the full-time equivalent head count between six and 8,000 over the next three years and between 10 and 12,000 over a five-year period of time."

Mr Trujillo added that the redundancy plan would start to hit earnings in the current financial year, and that profits for 2005/2006 would now be 30% lower, worse than the firm's earlier prediction of a 10% drop.

Mr Trujillo said a "new economic model" was needed at the firm.

The government's 52% Telstra stake is due to be sold off next autumn.