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Australia’s main corporate regulator on Tuesday said it had launched an investigation into whether Telstra, the country’s largest telephone company, breached stock market disclosure obligations after a surprise profit warning on Monday alarmed investors and drove down the company’s share price by more than 5 per cent.

Official confirmation of the probe by the Australian Securities and Investments Commission came as the opposition Labor party released a briefing document prepared by Telstra for the government last month, that says Telstra needs billions in additional funds to fix a national telephone network riddled with problems and to build an internet broadband network.

The probe comes on the eve of the Australian government’s introduction of legislation to parliament to enable the $30bn-plus sale of its remaining 51.8 per cent stake in Telstra.

It highlights an intensifying dispute between the government and Telstra’s top executives over the government’s plans to tighten regulation of the company ahead of its planned sale.

The ferocity of the dispute – and claims by Telstra that impending regulations will undermine its ability to generate profits – have driven down Telstra’s share price by about 13 per cent in the last two months.

The leaked document, which a Labor spokesman said was handed to Prime Minister John Howard and senior ministers on August 11, says 14 per cent of Telstra’s fixed lines are faulty. It also warns that the company cannot afford to keep borrowing from its reserves to pay the big dividends that shareholders have been led to expect.

Telstra had to use $550m from its reserve to pay dividends due later this month and set aside $2.2bn for next year, the document says.

Kim Beazley, the opposition leader, asked why the sensitive information about Telstra’s financial position was only given to the government and not to Telstra’s 1.6m shareholders.

Peter Costello, Australian treasurer, said that Telstra, not the government, was responsible for keeping the stock market informed about its financial situation and that any question about disclosure violations was a matter for the “proper regulatory authority”.

“The situation is that directors have obligations under the law and under the listing rules,” he said. “It is a matter for them to ensure they comply with both.”

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