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Telstra to Appeal Australian Regulator's Fixed-Line Fee Decision
Going on the Attack Again Contradicts Pledge to Ease Criticisms Ahead of Sale
By Lyndal McFarland
The Wall Street Journal
Tuesday, August 29, 2006


SYDNEY, Australia -- Telstra Corp. has attacked a recent decision by Australia's competition regulator, saying it "defied logic," just three days after assuring the government that it would tone down its criticism ahead of a share sale of eight billion Australian dollars (US$6.06 billion).

Telstra said it will appeal the Australian Competition and Consumer Commission's decision to reject the price the company planned to charge rivals, such as Singapore Telecommunications Ltd., to gain access to fixed-line customers.

"The [commission's] decision is inconsistent with the government's policy of a national uniform retail price and destroys value for Telstra shareholders," said Telstra Chief Executive Solomon Trujillo.

"We will appeal this decision to the Australian Competition Tribunal as a matter of urgency," Mr. Trujillo said in a statement, which included commentary on the company's legal position from Telstra's public-policy chief, Phil Burgess.

Telstra had earlier assured Canberra that Mr. Burgess wouldn't be offering opinions on "all matters that impact the sale process."

After months of delays, Prime Minister John Howard said Friday that in October and November, the government would sell A$8 billion in shares, or about a third of the government's remaining 51.8% stake.  His announcement came after he secured a promise from Telstra that it wouldn't attack the regulator and campaign for policy changes during the sale.

Canberra's remaining A$14.5 billion stake will be locked away for two years in a fund set up to meet public-service pension liabilities.

Analysts said Canberra will have to offer Telstra shares at a significant discount to generate sufficient demand.  The shares have fallen more than 30% since Mr. Trujillo joined the company a year ago, and analysts expect a further decline ahead of the share offering.

In Sydney trading yesterday, Telstra shares closed unchanged at A$3.50 each after touching a record low of A$3.43.

Investors are likely to be cautious about the offering, as Telstra faces falling fixed-line revenue, intense competition in the mobile and broadband sectors and a tough regulatory environment, analysts said.

"Amongst all the hype of an A$8 billion public offer ... it is important to remember that the fundamentals of Telstra will remain unchanged," Macquarie Research analysts said in a note.

Citigroup analyst Tim Smeallie said he expects domestic institutional demand for Telstra shares at "between A$2.80 and A$3."  At those levels, Telstra will be in line with its European peers, and that may help to increase interest in the stock from large institutions, Mr. Smeallie said.

Write to Lyndal McFarland at lyndal.mcfarland@dowjones.com

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