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Australia’s corporate watchdog on Wednesday sharply rebuked Telstra for an “unacceptable” approach towards market disclosure and signalled harsher action unless the company improved communications with shareholders.

The announcement, by the Australian Securities and Investments Commission, follows a three-month probe into whether the country’s dominant telecoms provider had broken stock market rules by failing, between August and September, to keep all shareholders aware of its deteriorating financial position.

ASIC’s ruling drew swift condemnation from Telstra, which insisted it would not change the way it dealt with investors.

The combative response follows Telstra’s public disputes with the federal government and competition regulators in the run-up to its A$30bn (US$22.7bn) full privatisation next year. ASIC launched its probe after complaints that Telstra secretly briefed the government about its financial woes in August, but waited until September before issuing a profit warning to shareholders.

Telstra warned Prime Minister John Howard and senior ministers it had been forced to borrow from its reserves to pay shareholder dividends and almost 14 per cent of its phone lines were faulty. Telstra also handed out a document regarding its financial position to selected journalists.

ASIC said it was also “concerned” about a briefing to analysts after the release of Telstra’s annual results on August 11.“While the briefing was webcast, that is not a substitute for the clear requirement in the listing rules to provide any price-sensitive information to the stock exchange in the first instance,” ASIC said.

Jeff Lucy, ASIC chairman, said he had written to Telstra outlining the concerns. “We found a set of practices which cannot be regarded as acceptable for a corporation of the size and significance of Telstra to the Australian market, but which fell short of being appropriate for [the instigation of] court proceedings,” Mr Lucy said. “We have put Telstra on notice.”

Although Telstra welcomed ASIC’s decision not to take legal action, Douglas Gration, company secretary, said the company rejected its criticism. “Telstra’s standard of corporate governance is widely respected in the Australian corporate community,” Mr Gration said.

He later told the FT: “Our track record proves that our [investor relations] processes are good. Our game is well and truly lifted already. We are not being treated the way other companies would be treated. There are politics involved in this.”

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