Cash rich, profit poor might describe the plight of Telstra after yesterday's 2010 earnings report and outlook.

Cash flow jumped sharply to over six billion dollars, but earnings eased by nearly 5% in 2010, with another dose of the same forecast for 2011, and down went the shares.

While the fall in the 2010 year was in line with market expectations, the outlook forecast was not liked by investors,

Telstra shares slumped more than 9.5% to a low of $2.94, a loss of 31c on the day.

The overall market was off more than 1.5%, so it was a rough day for the Telco.

That was a loss of $4 billion in value, more than the net profit for the 2010 year.

Telstra said in its outlook that it expected to see a high single-digit percentage decline in earnings before interest, tax, depreciation and amortisation (EBITDA) for the 2011 financial year, on flat sales revenue and free cash flow of between $4.5 billion and $5 billion.

That compares to the $3.88 billion net profit for the 12 months to June 30, down from $4.07 billion in the 2009 year, thanks to lower fixed-line earnings and an asset write-down, partly offset by a solid performance from mobile and wireless internet.

"2010 has been a challenging year, yet in the second half we started to see improving momentum in key products, and positive growth with business, government and enterprise customers," Telstra chief executive David Thodey said in a statement to the exchange yesterday.

Telstra said the industry was at a major turning point, with massive growth in internet and mobile use, while the trend of declining fixed-line returns continues.

The result also underlines the importance of the NBN deal to the company, and why the federal opposition's broadband policy is bad news for the Telco.

Telstra will get $11 billion for the bits of the company that are continuing to drag down revenue growth and earnings: that's the copper wire business that the NBN has a head of agreement to buy.

But if the government loses the election, that deal is off, meaning Telstra faces years of declining earnings from this area, no matter what sort of broadband system is constructed by a new government.

Revenue for the 2010 year totalled $24.92 billion, down 2.3% on 2009, while EBITDA edged down 0.9% to $10.85 billion.

Free cash flow totalled $6.2 billion, up 42.6% on 2009 and a sign of the continuing underlying strength of the company.

Revenue from Telstra's fixed-line operations, or public switched telephone network (PSTN), was down 8% to $5.83 billion (that's the bit the NBN wants to buy).

The fall in PSTN revenue accelerated in the second half of the year to June 30, as lines were cancelled and usage dropped across all call categories, particularly local and national calls.

There was a 4.2% drop in retail lines in the year, equivalent to 326,000 cancelled fixed lines, Telstra said, while fixed internet revenue also fell, down 0.7% from the previous year to $2.14 billion.

Intensifying competition saw about 19,000 retail fixed broadband customers lost in the year, but mobile revenue grew by nearly 6% to $6.46 billion, with voice revenue falls more than offset by data usage on handsets and wireless broadband.

Mr Thodey said that "the greatest asset that Telstra has is our customer base and we have been losing too many customers. ''I am not going to allow it to continue.''

He said the company had decided it was in the best interests of shareholders to focus on sustainable growth.

"In the coming year, we must prepare Telstra for the future, invest to take advantage of new revenue streams, and utilise our upgraded IT systems and networks to further improve customer service and satisfaction. These investments will be selective, carefully targeted, and rigorously monitored to ensure they serve the long-term interests of customers and shareholders."

There was no change in the dividend with a final of 14c a share to be paid, bringing the total annual dividend to 28c.