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The poker game that is the planned A$24bn (US$17bn) sale of Telstra is approaching its final stages, with the participants all stubbornly determined not to throw in their hand.

The Australian government, led by John Howard, has long cherished the full privatisation of Telstra, the country?s dominant communications carrier, and after a 10-year battle it managed to attain parliamentary approval for the sale late last year.

But Canberra?s proposal to sell off its remaining 51.8 per cent stake to investors this year threatens to be derailed by a bitter disagreement between the company and its chief regulator.

Telstra is experiencing a rapid fall in earnings from its traditional fixed lines and has warned that its multi-billion dollar investment in next-generation technology is dependent on it receiving a ?suitable? hearing from the regulator.

The Australian Competition and Consumer Commission wants other carriers to be able to use Telstra?s fixed copper lines to promote competition in the industry, but both sides cannot agree on a pricing regime. Telstra has threatened legal action if it does not agree with the decision, which could come as early as next week.

While the regulatory battles rage on, the government has watched the company?s share price plunge to below A$3.70 ? about half the level in 1999 when it last sold Telstra stock.

With its financial position deteriorating rapidly, there are growing fears that Telstra will have to cut its generous 28 cents per share dividend ? about the only ray of sunshine for 1.6m ?mum and dad? investors in a company that has long over-promised and under-delivered.

Still, it came as a surprise last week when Mr Howard, prime minister, for the first time signalled that the sale might be delayed because the share price was too low.

The cabinet is scheduled to decide next month on whether to proceed with the sale in October or November this year.

Australia holds federal elections next year and aborting the sale now could effectively remove it from the agenda for several years.

One investment banker in Sydney says: ?John Howard has realised that his ?sell at any cost? strategy has allowed Telstra to make all the running. His latest comments are a shrewd way of trying to offer the market alternatives to a full sale. If there is momentum in the share price, people will buy fresh stock.?

Officials in Canberra argue the government has always maintained the option not to sell. However, privately, they admit that Telstra?s combative approach, fostered by new chief executive Sol Trujillo, has altered the political calculations surrounding the sale. One said: ?Telstra?s approach is causing palpitations in Canberra. Time is running out and the tension is building.?

One person familiar with the sale process believes that Mr Howard is seeking to give himself some political flexibility should the regulatory fight make the full sale financially unviable.

However, he is optimistic that all will end happily. ?Leave the politics aside. This sale will get away if the dividend is maintained, as pensioners and investment funds are looking for high-yield stocks. Of course, the dividend depends on regulation, and I think the sides are close to a settlement.?

There are many voices urging the government to be radical in its approach to the industry. Paul Budde, an independent telecoms analyst, believes the government no longer views Telstra solely in terms of maximising shareholder value.

?The government has started to appreciate that Telstra is a national asset that can be used to spearhead significant reforms in the internet age,? the analyst says.

Mr Budde, who has the ear of government, has urged Helen Coonan, the communications minister, to push through a structural separation of Telstra?s retail and infrastructure arms.

He says: ?The retail market could be lightly regulated, allowing Telstra to innovate and compete from a position of strength. If we linger on with the current regulatory structure, the share price could drop below A$3.?

He adds: ?It is never too late to change course and introduce an environment that will benefit the Australian economy for years to come.?

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