update: Since this article was published, Telstra has clarified that the comments published below were originally published by the Financial Review and distributed to staff as a daily email summary of media commentary. It appears that a Telstra staff member removed the AFR attribution and published the statement on Telstra’s internal intranet; it appeared to staff that it was a statement from Telstra itself.

news Telstra has issued a newsletter to its retail staff informing them that iiNet’s buyout of Internode could see TPG vaulted into clear third place in Australia’s broadband market, following a possible buyout of iiNet by TPG.

Over the closing months of last year, TPG bought about 7.24 percent of iiNet, in a move which many in Australia’s telecommunications sector could be the first step to an eventual acquisition bid. At the time, TPG said it had “no specific intention regarding iiNet” other than to own the shares as “a strategic investment”.

Speculation about the future of the industry as a competitive sector intensified when iiNet unexpectedly announced just before Christmas last year that it would buy long-term rival Internode, with Internode founder Simon Hackett to end up owning a similar percentage of iiNet as TPG when the transaction completes early this year.

However, in an update to staff issued yesterday under the ‘industry news’ banner and seen by Delimiter, Telstra appeared to state that it believed a TPG acquisition of iiNet was likely. “iiNet’s $105 million acquisition of Internode, announced just prior to Christmas, will see it gain 190,000 subscribers, and spearhead TPG Telecom into third place among broadband providers behind Telstra and Optus,” the company’s update read. “In recent months, TPG Telecom has been building a stake in iiNet, which, according to market speculation, could be a precursor to a full takeover.”

It’s possible that the mention in Telstra’s newsletter of TPG Telecom leaping into third place could be a typo — with the iiNet acquisition of Internode actually more likely to leap iiNet into third place in the broadband sector. A TPG acquisition of iiNet would likely lead TPG to being the second-largest player in Australia’s broadband sector, ahead of SingTel Optus.

If an acquisition of iiNet by TPG did occur, it would see Australia’s telecommunications sector drastically consolidated in the arena of fixed-line broadband into just three major players — current incumbents Telstra and Optus as well as TPG. Other rivals such as Primus and Dodo currently have a reduced market share compared with the existing top four players.

Any move by TPG on iiNet would likely be viewed by iiNet’s board as a hostile takeover attempt. The two ISPs have radically different corporate cultures and market approaches, with iiNet being viewed as a very open and friendly company which tends to target mid-level broadband consumers with premium customer service and a quality broadband network, and TPG having a more cut-throat internal corporate culture and a market focus which sees it positioned as one of Australia’s discount kings of broadband.

The chief executive of iiNet, Michael Malone, has said a public inquiry would need to be held if TPG decided to extend its stake in his company to the point where an acquisition was on the cards — and the issue could become a policy question to be decided by the Federal Government.

If TPG were to make an offer for iiNet, Malone said, such a deal would be on the threshold where the Australian Competition and Consumer Commission would be interested in examining impacts on competition arising from the deal.