Telco sale bill in Australian Parliament

CANBERRA - The Australian Government introduced law changes allowing for the sale of its controlling stake in Telstra as ministers warned executives at the nation's biggest telephone company not to criticise regulation of the business.

Chief executive Sol Trujillo this week said regulation of Telstra, including curbs on prices it can charge rivals, may contribute to a drop in earnings this fiscal year. His comments helped drive Telstra's stock price further below the Government's target for the sale next year.

"The focus that has been taken by the new management on regulation hasn't been the most appropriate approach,"

Communications Minister Helen Coonan said on Nine Network television: "What the management needs to do is run the business and leave the rule settings to Government."

Coonan's comments came after the nation's securities regulator on Tuesday started an investigation into disclosures by Telstra following its earnings forecast. Telstra on September 5 said earnings might fall as much as 10 per cent because of falling fixed-line sales, slowing wireless growth and increased regulation.

To win support for the sale of the Government's 51.8 per cent stake, the Liberal-National coalition has agreed to force Telstra to maintain unprofitable services in rural areas, split its retail and wholesale businesses and set price controls for rivals accessing its network.

Shares of Telstra closed up 2Ac at A$4.34 in Sydney. The stock has dropped 12 per cent this year, making it harder for the Government to achieve a target of A$5.25 a share.

"We need to get the legislation in today and the Government needs to get out of Telstra," Coonan said. "I won't be commenting about the price or the value as such, but we'll be looking at it early next year."

Telstra shares had their biggest decline in four years after the earnings statement.

The profit announcement also may undermine the company's credit ratings. The rating on about A$13.1 billion of its debt may be cut by Moody's Investors Service, according to a statement on Tuesday.

Some 70 per cent of Australians oppose the Government's plan to sell the stake, according to a Newspoll published in the Australian newspaper on August 16.

- BLOOMBERG