Telstra loses key ruling on charges

SYDNEY - Australia's biggest phone company, Telstra, has lost a key regulatory ruling and warned that the decision will hurt profits and cloud the planned sale of the Government's A$26 billion ($28 billion) stake in the firm.

Australia's competition watchdog yesterday rejected prices Telstra wanted to charge rivals to access its network. Telstra shares fell on the news, giving up earlier gains to close up 1.3 per cent at A$3.93, off a high of A$4.

Telstra has estimated that regulatory decisions calling for lower prices would probably cost it more than A$850 million in lost revenues in 2005-06.

The rejection had been widely expected.

But analysts said it underscored uncertainty facing Telstra as investment bankers prepared to sell the Government's 51.8 per cent stake.

The Government has been advised to sell its stake in October or November next year but will decide in the first quarter of 2006 whether to proceed with Australia's biggest-ever share sale.

"This will simply mean more delays. When you have this hanging over your head, how can you do things like due diligence? Nobody will sign off on this when it is still up in the air," said Paul Budde, an independent telecoms analyst.

The Australian Competition and Consumer Commission's (ACCC) rejection comes as Telstra says it will defer rolling out part of a A$10 billion high-speed network until it gets greater certainty on rules governing third-party access to that network.

Telstra said that putting on hold the "fibre-to-the-node" component of the new network meant it would retain parts of its fixed-line copper network and would not have to speed up the depreciation or writedown of them in fiscal 2006.

As a result, Telstra yesterday raised its earnings growth guidance for fiscal 2006 by about 4 per cent.

It now expects earnings to fall 15 per cent to 20 per cent, without a restructuring and redundancy provision, or 21 per cent to 26 per cent with a provision.

Budde said Telstra's decision to hold off on part of the A$10 billion upgrade was an attempt to "bully" the Government to get the regulatory outcome it wanted.

"This is such a hollow threat by Telstra. Telstra cannot afford not to roll out fibre to the node. It's rubbish."

The "fibre-to-the-node" technology will be a high-speed alternative to old copper wire.

The watchdog's ruling is expected to move to arbitration, a process that could take months and is likely to dog Telstra shares, down by nearly a quarter in the past five and a half months due to the regulatory uncertainty and profit downgrades.

"The ACCC's final decision is to reject Telstra's monthly charges," ACCC chairman Graeme Samuel said in a statement, adding the charges were higher than would be needed to recover costs.

- REUTERS