SINGTEL-OWNED Optus, Australia's second-biggest telecommunications provider, is likely to emerge as the front-runner in the race to build the country's high-speed Internet network.

This is after Optus' rival, Telstra Corp, was disqualified from the government's plans, said Bloomberg yesterday.

Quoting Melbourne-based Telstra in a statement, the news agency said the Australian government rejected Telstra's Nov 26 proposal because it did not provide plans for small businesses to provide goods and services to the network.

Communications Minister Stephen Conroy confirmed the disqualification in an e-mail, said Bloomberg.

The government's decision has serious implications for Telstra, which aims to strengthen its dominance in Australia's high-speed broadband market. It has three times the number of users than Optus, said Bloomberg.

With Telstra's bid rejected, SingTel is likely to emerge the front-runner, said Mr Angus Gluskie atWhite Funds Management in Sydney.

'This certainly represents a potential challenge for Telstra to maintain its dominance,' said Mr Gluskie, as quoted in Bloomberg.

'The regulator wants to send out a message that it's not prepared to be bullied into accepting a bid on Telstra's terms.'

News of the disqualification caused a 12-per-cent drop in Telstra shares, to A$3.65 (S$3.60) in Sydney yesterday. It was the biggest decline since the shares were first listed in November 1997, Bloomberg reported. The stock has lost 22 per cent this year, cutting Telstra's market value to A$45.4 billion. In contrast, SingTel rose 1.5 per cent to $2.65 in Singapore trading.

Telstra, however, remains hopeful. Chief executive Sol Trujillo said at a conference call with analysts that the company has plenty of options.

'It's too early to rule anything in or out, and we remain hopeful that sense will prevail,' he was quoted as saying in the Bloomberg report.

According to the proposed plans, Prime Minister Kevin Rudd's government will offer as much as A$4.7 billion to build a nationwide high-speed network capable of reaching 98 per cent of homes and offices.

Last month, Telstra said it was 'ready to commit up to A$5 billion' to the network, covering up to 90 per cent of the country's population, according to the Bloomberg report.

Telstra was among four bidders, including Optus, Canada's Axia NetMedia, and Acacia Australia, vying for the project.

The Australian government has eight weeks from Nov 26 to review the bids before deciding on the winner, said Bloomberg.

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