Telstra, Australia’s dominant telecoms company, on Monday abandoned a flagship A$3.1bn (US$2.4bn) broadband project because of a regulatory dispute, raising the pressure on the government as it nears a decision on whether to sell its remaining 51.8 per cent stake.

The company scrapped plans to build a fibre-optic network to boost its internet offering in Australia’s five largest cities, after failing to agree with the competition regulator over what it could charge rivals for access. The network was a centrepiece in a five-year investment and overhaul strategy unveiled last November by Telstra in the face of increasing competition from rivals such as Singapore Telecom.

The cancellation is also a blow to Alcatel, the French telecoms equipment maker, which last November secured the main contract to build the network. Its shares were down 2.5 per cent at lunchtime in Paris.

Alcatel said that Telstra’s decision not to go ahead with the network only affected a portion of the proposed agreement announced last November, namely the supply of “fibre to the node” (FTTN) equipment. However, it refused to put a figure on the financial effect.

It said in a statement: “Alcatel has always understood that the programme was predicated on a positive regulatory framework, and has planned accordingly.” It added that it would continue to be a “key strategic supplier of Telstra’s”.

Telstra’s U-turn comes as the government, which has repeatedly called on the company to solve its disagreements with the independent regulator, is expected to decide this month whether to proceed with the share sale. It also coincides with growing concerns that Telstra will announce a cut in its annual dividend payment, currently set at 28 cents a share, when it publishes earnings on Thursday. Its share price fell more than 2 per cent on Monday to A$3.80.

Telstra said it had been “caught in the crossfire of conflicting policies”. It argued that Australia risked falling rapidly behind Asian rivals because of a “confused and inconsistent” regulatory environment that is hampering advances in telecoms infrastructure.

Having secured parliamentary backing last year for a full divestment from Telstra, John Howard’s government has repeatedly delayed a final decision, awaiting clarification about the telecoms group’s regulatory situation and its profits outlook. Meanwhile, a gradual decline in its share price has reduced Telstra’s value by more than a fifth over the past year. At current levels, the 51.8 per cent stake would be worth A$24.5bn.

Nick Minchin, finance minister, said: “Any decision to sell the government’s remaining stake in Telstra will take today’s announcement into account.”

The government could decide as early as Monday, two people close to Telstra suggested. In recent weeks, ministers have insisted there would not be a fire sale of Telstra and several options were being considered.

Additional reporting by Adam Jones in Paris.

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