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Sunday, June 20, 2010

Telstra Surges on $11 Billion Government Internet Network Deal

Bloomberg Business Week

Telstra Corp., Australia’s largest phone company, surged the most in a decade in Sydney trading after the company reached a A$11 billion ($9.7 billion) accord with the government to shut down its copper wire network.

Telstra shares rose as much as 8.8 percent, their largest intraday gain since March 2000. The stock was trading 7.1 percent higher at A$3.46 at 10:28 a.m. in Sydney.

The preliminary agreement gives NBN Co., the government- backed company building Australia’s first national fiber network, access to Telstra’s fixed-line customers, as well as the ducts and trenches that house its copper wires. The agreement, which is subject to shareholder approval, avoids penalties the government had proposed, including barring the Melbourne-based company from acquiring airwaves for advanced mobile services.

“The announcement is a clear positive,” Christopher Vagg, an analyst at Citigroup Inc., said in a note to clients today. “Given the importance of this announcement to all parties we expect the transaction to proceed but the process will take many months.”

Prime Minister Kevin Rudd announced the agreement yesterday, removing a obstacle to the creation of the state-led national broadband network. The government first called for Telstra to split its fixed line assets in September and the company had been in talks with regulators since.

Shareholders to Vote

Chairman Catherine Livingstone yesterday said Telstra needs to forge a “definitive agreement” with the government. Its 1.4 million direct shareholders will get to vote on the proposal in the first half of calendar 2011, before new laws can be drafted and approval is sought from the Australian Competition and Consumer Commission.

Telstra’s copper-wire platform is Australia’s only network. The company receives fees from rivals including Optus when they want to offer voice and Internet services in the country.