Telstra on Thursday surprised analysts by slashing its capital expenditure forecast for 2006 by A$700m (US$530m), amid growing signs it is close to settling a dispute over regulation that threatens to torpedo its planned full privatisation this year.

The announcement came as Sol Trujillo, Telstra chief executive, continued with a trip to the UK to talk to institutional investors, staff and suppliers about the growth prospects of Australia’s dominant telecommunications company.

Telstra said its forecast capital expenditure for the 2005/06 financial year would now be between A$4.1bn and A$4.4bn, down 14 per cent from the previous forecast of A$4.8bn and A$5.1bn.

Telstra said the revised guidance mainly stemmed from lower costs for property, plant and equipment, and improved capital labour productivity.

Analysts said the news would help alleviate concerns about Telstra’s near-term ability to continue paying relatively high dividends.

The company is investing in new services to overcome a decline in fixed-line revenues, leading to fears it might have to slash its dividend pay-outs.

Competitive pressures and technological change have forced Telstra to transform its business model. Last November, it announced plans to shed 12,000 jobs over five years and spend A$10bn upgrading its networks.

However, Telstra warned on Thursday that the A$2bn rollout of its next generation broadband network would remain on hold until it came to an agreement with the competition regulator over what access its rivals should have to the new cables.

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