The proposed marriage between Telstra and Internet service provider OzEmail would be disastrous to the ISP community, telecommunications analyst, Paul Budde has claimed.
"It cuts out the most important competitor to Telstra," Budde said.
"It really gives Telstra that monopoly and . . .that's totally undesirable."
Telstra has confirmed it has signed an exclusive heads of agreement to purchase all OzEmail's residential service provider business assets.
The deal, which is yet to be finalised, is said to be worth more than $300 million.
According to officials, Telstra is proposing to retain OzEmail as a stand-alone business and wholly owned subsidiary. It will have its own Board and the OzEmail brand, operations and network will be operated with its own management.
OzEmail's parent company UUNet will continue to provide network services including Internet access, connectivity, backbone services, and other services to OzEmail customers under a five-year agreement as part of the proposed purchase, officials said.
Budde said the acquisition would be similar to the attempted takeover bid by Cable & Wireless Optus (CWO) for rival telco AAPT in April last year.
"I would definitely argue for the ACCC [to] investigate and closely look at the situation for the same sort of reasons they investigated the Optus/AAPT takeover," Budde said.
OzEmail is Australia's second largest Internet service provider, behind Telstra, with an estimated 300,000 customers.
A spokesperson for Senator Richard Alston, minister for the department of communications, information technology and the Arts said of the proposed acquisition: "All we are saying is that the Government does not interfere in the commercial operations of Telstra, but any issues regarding the substantial reduction in competition will be dealt with by the ACCC."
ACCC Chairman, Professor Allan Fels was unavailable for comment.
The deal is subject to further negotiation, due diligence, Board approval by Telstra and UUNet and approval by the Australian Competition and Consumer Commission.