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Telstra, Australia’s dominant telecoms company, on Thursday raised the stakes in its regulatory battle with the country’s utility watchdog by withholding a dividend announcement.

By maintaining a threat to cut the annual dividend, currently 28 cents a share, Telstra also cast a cloud over the government’s plan to sell its remaining 51.8 per cent stake in the operator. Canberra is expected to make its long-delayed decision about whether to proceed with the divestment this month.

Ivor Rees, head of research at Baillieu, a Melbourne-based brokerage, said: “The real sting is the threat to cut the dividend because that would whack the share price. Telstra is obviously trying to maximise pressure on the government to help it win its fight with the regulator. Otherwise there will be a dividend cut and [the government] will get much less for their shares.”

Many of Telstra’s 1.6m retail shareholders invested in the group because of its high and steady dividend policy.

Sol Trujillo, chief executive, told the FT it was “absolutely incorrect” to say Telstra was undermining the government’s efforts to divest its stake. He argued that the sale, dubbed T3 as it would be the third tranche sold, would also free Telstra of some political constraints.

“A successful T3 would mean that Telstra shares would be fully traded and it would reduce possible conflicts of interest because there are certain ministers who believe Telstra is an arm of the government.”

On Monday, Telstra abandoned plans to build a A$3.1bn (US$2.4bn) broadband network because of a regulatory dispute about what it could charge rivals for access.

Although the network was at the heart of a five-year development strategy unveiled in November, Mr Trujillo insisted on Thursday that “the good news is that we do have other options”.

He also said that “we have kept our door open” for further talks with the regulator.

Last month, the regulator said Telstra had to cap prices charged to competitors for using its existing network for the coming three years but without specifying those limits.

Telstra reported that net profit fell from A$4.3bn to A$3.2bn in the year to June 30, the lowest level since the group listed in 1997. It forecast that revenues would rise 2-2.5 per cent in 2007.

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