Telstra Market Power Concerns Australia Competition Watchdog--Chairman

The growing market power of Telstra Corp. (TLS.AU) has a lot to do with the competition watchdog's concerns about pay-TV company Foxtel's proposal to buy regional competitor Austar United Communications Ltd. (AUN.AU) for 1.9 billion Australian dollars ($2 billion), Australian Competition and Consumer Commission Chairman Rod Sims said Sunday.

Telstra, the nation's biggest telco, will be a major retailer of broadband services on the new network. Because it also owns 50% of Foxtel, the dominant pay-TV player in the cities, there are concerns it could wield too much power if allowed to combine with Austar.

Australia is undergoing massive structural changes in its telecommunications sector with the rollout of a A$36 billion national high-speed Internet network.

On Wednesday, Telstra said it had finalized its A$11 billion agreement with the federal government over the rollout of the network, which involves Telstra progressively shutting down its fixed copper-line service.

If the pay-TV merger proceeds, Telstra would take its 50% ownership of Foxtel to all of Australia, and as the telecommunication world increasingly moves to a bundled product of broadband, telephony and television, Telstra would hold a significant advantage, he said.

"The dominant point with the merger is that they get access to content," he said in an interview on Australian Broadcasting Corp.'s Inside Business program.

Last week, Foxtel appeared to have moved closer to buying Austar by proposing changes to address some ACCC competition concerns for television content broadcast online.

The ACCC said last July it was "likely to result in a substantial lessening of competition" in the pay-TV services market, the market for TV content, and several markets for telecommunications products in Australia. The ACCC has set a tentative decision date of March 29 for the proposed merger.

The other half of Foxtel is owned by News Corp. (NWSA, NWS.AU)--the owner of Dow Jones & Co., publisher of this newswire--and Consolidated Media Holdings Ltd. (CMJ.AU), which each have a 25% stake.

-By Ray Brindal, Dow Jones Newswires; 612 62080902; [e-mail]