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Telstra Fails on Green Light for OzEmail Buy-Out

Telstra has been left hanging on the decision of the Australian corporate regulator as to whether to approve Telstra's proposed take-over of OzEmail's consumer ISP operations.

Telstra signed a heads of agreement deal with MCI Worldcom last Christmas Eve to purchase the consumer ISP division of its Uunet Australia subsidiary, which is the only part of the company still known as OzEmail after Uunet bought it last year. The deal would unite Telstra's Big Pond, the largest consumer ISP businesses in the country, with the second largest player to create a single provider with more than 40 per cent market share.

The Australian Competition and Consumer Commission, the government body which has the power to seek an injunction preventing corporate mergers if they are anti-competitive, gave only a preliminary assessment on the matter today. The delay was made despite pressure from Telstra for a decision before its agreement ran out, and media speculation that it would decide in the negative.

Professor Allan Fels, chairman of the ACCC, said that the short amount of time given to examine documents relating to the deal had meant that it could not give its consent at present, and he made several other comments at a press conference in Melbourne during the day which were severely critical of Telstra's position.

"Based on the information that the ACCC has collected to date, there are significant concerns that the acquisition will substantially lessen competition," he said. "This represents the ACCC's preliminary assessment, but it will now consider this matter further.

"With the removal of OzEmail as a separate business entity in the provision of residential Internet subscriber services, the ACCC is concerned that there is a danger to competition because a vigorous and effective competitor to Telstra would be eliminated."

Professor Fels said that while barriers to entry were low in the ISP entry, scaling an ISP business to build a national subscriber base was significantly more difficult, and OzEmail was the only ISP large enough to compete head-to-head with Telstra.

"It is possible that the proposed acquisition could have a detrimental impact on the competitive dynamics for Australian online content, online advertising and electronic commerce," Professor Fels added. "These Internet markets are still in the early stages of development in this country. The emergence of a dominant Australian ISP could retard competition and stifle innovation in these evolving markets."



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