He accused politicians of systematically dismantling the company for political reasons. And like many shareholders at the meeting, he was not upset that Telstra was changing , but that the board appeared to be in the passenger seat. ''My suggestion to Telstra is this - you have got to depoliticise your company,'' he said. ''Separate the infrastructure, because that is what the government wants. Set about having Telstra Retail, Telstra Media, Telstra Infrastructure. Give the shareholders a share in each of these things, watch the share price go up.'' With the House of Representatives set to pass new telecommunications consumer and competition legislation next week, after the Senate passed it with amendments yesterday, it looks like Telstra finally has its feet on firm ground for the first time since it was thrown out of the government's tender process for a new fibre network in late 2008. Two years later, the government has created its own company to construct the fibre network, at a cost of $35.7 billion, and Telstra is ready to sign a $14 billion deal with the government-owned NBN Co to participate in the project. The deal has been hailed as a win for Telstra, but retail shareholders who have stuck with the company through a decade of share price decline feel they are being bamboozled.

''Shareholders feel very let down both by government actions and also by the way the board and executive team over a number of years have damaged their investment,'' says Ian Curry, Victorian chairman of the Australian Shareholders Association. ''The government sold off three tranches to the public at pretty high prices, and then decided to break Telstra up [and] blackmail it into agreeing to the proposals it put forward with the NBN. And then [it] has the nerve to suggest it will sell the new Telstra, the NBN, back to the public.'' Curry disagreed that Telstra needed to transform every few years because of the nature of the telecommunications industry. ''It depends on the change,'' he said. ''If it is change due to technological advances [that's fine]. But if the change is just to bring your service and administration up to scratch, that is a failure. That is where [Telstra] has let customers and shareholders down - its service is generally pretty poor and they are trying to keep up with competitors, rather than lead. ''I think a great number of our members and shareholders generally have given up and sold

out. I think there was a great disillusionment among members about the share price and the fact a lot of them have just lost money on it.'' He was not optimistic that much money from the deal with NBN Co would flow back to shareholders, but said Telstra had managed to get the best deal it could in the circumstances. NBN Co's business plan summary revealed Telstra is set to receive nearly $14 billion from NBN Co in decommissioning and rental payments by June 2020. With the traditional fixed phone line business in decline - the original source of pressure on the share price - the only question is how quickly Telstra can embrace a future on an increasingly level playing field. The legislation that passed the Senate yesterday and awaits House of Representatives approval on Monday rewrites regulations rather than giving birth to the national broadband network. It sets up the legal framework for Telstra to lodge a structural separation undertaking to the Australian Competition and Consumer Commission. This means it has agreed to transfer every telephone connection to NBN Co so that all households can be connected to the new fibre network.

The legislation also makes it more important for Telstra shareholders to vote in favour of the deal with NBN Co. If they do not approve the deal, Telstra will keep the copper network, but will not be able to bid for new mobile spectrum and will have to sell its 50 per cent stake in Foxtel. It also misses out on $14 billion in payments from NBN Co for decommissioning the copper and leasing its underground pipes and ducts. And even if Telstra does not participate in NBN Co's project, it will still be operating under new legislation that rewrites the 1997 competition framework legislation that underestimated Telstra's strength as an integrated company, according to Ovum's telecommunications research director, David Kennedy. ''We do not know in detail what the separation agreement will actually say … [but] the kind of [regulatory] certainty that will flow through probably won't be good for Telstra,'' he said. ''The ACCC will be able to intervene faster and impose regulation on Telstra more quickly.'' The changes could encourage Telstra's wholesale customers to abandon lengthy commercial negotiations and run to the ACCC for better deals, he said. This was because the ACCC could publish benchmark prices and get involved in disputes much quicker under the new laws.

But this is less relevant once NBN Co finishes its network and is the nation's wholesale supplier of fixed-line services. And Telstra is preparing for the new environment. Chief executive David Thodey announced in August that Telstra would transform into a nimbler and more service-focused company. In September he outlined plans for new IT-based services, such as hosting information in data centres, new media opportunities in content and advertising and increasing value in Asia-based assets. On Wednesday the head of Telstra Wholesale, Paul Geason, told a business luncheon how his division would operate in the future given its current responsibility was maintaining and selling access to the copper network. Geason foresees Telstra Wholesale as a hosting provider and an aggregator and a wholesale reseller of NBN Co's fibre to smaller internet providers. It also has the important job of maintaining infrastructure for NBN Co to use over the next 30 years. While analysts say the legislation gives the industry greater regulatory certainty and many upgraded their recommendations for the first time in years last week after its passage was secure and Telstra announced 28¢ franked dividends would be paid for two years, some issues are still lurking.

For example, the ACCC recently launched a review of fixed-network access pricing. The draft report valued Telstra's customer access network at $7.5 billion rather than the previous $23 billion. If the competition watchdog sticks to this valuation in its final report, it will affect revenue and value. RBS analyst Ian Martin wrote to the ACCC in October arguing that the revaluation was inappropriate and reversed statements made to buyers before the government's sale of the final tranche in 2006. ''Decisions made by investors to invest in Telstra, including in the T3 sale, were informed by this approach to valuing the network, and many may have relied on it,'' he wrote. ''We do not think Telstra's shareholders and the equity market would have supported [access network] capital maintenance investment at the same level as Telstra had undertaken if the valuation was really on $7.5 billion.'' But most shareholders are focused on the stability and cash flow to be provided by the deal with NBN Co. Telstra says the heads of agreement should be finalised by next month and an independent review of the deal will be presented to shareholders before they vote on it in June. Meanwhile, Telstra's biggest shareholder, Future Fund chairman David Murray, said he was waiting on the heads of agreement between Telstra and NBN Co.

''We have expressed concern that the heads of agreement has not been released and this lack of information has caused [Telstra's] share price to be in limbo,'' he said. ''We have to wait and see a detailed proposal.'' The fund holds 9.86 per cent of the company. It recently voted against all resolutions at the annual meeting. This move was interpreted as antagonism, but Murray denies it was emotional. ''Dealing with Telstra is not a matter of personalities, as some people have suggested,'' he said. ''The vote about the board was not personal, we have a view about telecommunications experience on the board and our vote was about that. Our vote was consistent with our position.'' The fund has always said it would sell down its Telstra holding. The fund sold its first major chunk in August 2009 when it offloaded 694.4 million shares in a private deal. And in October's Senate estimates it revealed it had been selling Telstra shares on market since September, when shares were already trading under $2.80. If the board wants its Australian equities allocation to reflect the S&P/ASX 200 Index, where Telstra is 2.6 per cent of the index, it could be expected to sell more than 1 billion shares over the next two to five years.

At the AGM, Livingstone claimed the fund's selling was one factor pushing down the share price, along with devaluation of telco shares globally, uncertainty over the NBN, low revenue growth and concerns over the dividend. ''I looked at what Catherine Livingstone said and it was a fairly balanced position, but the notion that the Future Fund [was] the cause of the falling share price was a disappointing thing to hear at the [annual meeting],'' Murray said. The passage of legislation that pushes Telstra closer to that deal with NBN Co has boosted the share price to its highest in three months, perhaps proving Murray's point. Shares briefly traded at $2.95 on Thursday, a week after they were trading at historical lows of $2.55. The Telstra board may wish its annual meeting had been a week later so it could show it is in the driving seat.