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Telstra is expected to shut down its aggressive IPTV ambitions and hand over its 300,000 plus T-Box customers to Foxtel, once the merger of Foxtel and Austar is completed, sources close to the deal have told The Register.

Speculation has been rife that Telstra’s burgeoning IPTV division would be the casualty of the AUD$1.9 billion merger and sources close to both operations claim that under Telstra and Foxtel’s one element of the many-layered agreement between the two includes a long-held understanding that should Telstra would abandon the pay-TV playing field should Foxtel take over its rival Austar. Telstra owns 50% of Foxtel.

Under the ACCC’s conditions for the Foxtel/Austar take over, Foxtel will be prevented from acquiring exclusive IPTV rights for a range of attractive television program and movie content.

The ACCC also decreed that Foxtel will also be prevented from acquiring exclusive mobile rights to the aforementioned content in the case that those rights are sought by competitors to combine with IPTV rights. With Telstra handing over the T-Box platform to Foxtel, the pay-TV operator then get access to its extensive and elaborate content deals that are already in place.

On Friday, Telstra’s Director of IPTV, T-Box, Pay TV and Video at Telstra Ben Kinealy, announced internally that he would be leaving the carrier in one week. Kinealy led Telstra’s IPTV operations for many years and is the last one standing in the core group that helped develop the T-Box.

In an internal email to staff late Friday afternoon Telstra Media, Applications and User Experience, executive director J-B Rousselot informed the team that Kinealy would be leaving the carrier after six years of service, “to take up a new opportunity.”

In Kinealy’s various roles he was instrumental developing Telstra’s mobile FOXTEL offering and moving BigPond Movies from direct mail to Video on Demand and helped develop both the content deals and features of Telstra’s T-Box.

Rousselot said that he would take responsibility of Kinealy’s role while the search for a replacement continues, but internally sources suggest that the role will be split as the division winds down.

His sudden departure comes as no surprise as Telstra’s media division has been haemorrhaging its top talent for some time and has been taken as a signal internally that the demise of the division is about 6 months away from handover.

In August IPTV aspirant Quickflix poached the architect behind Telstra’s content deals Andrew Lambert, formerly Telstra Media’s General Manager for business development and content acquisition.

He followed former director of Telstra Media, Chris Taylor who was appointed the new CEO of Quickflix in July. Industry stalwart Justin Milne, the former head of Telstra Big Pond and Telstra Media, also joined the company as deputy chairman.

In November Telstra created a new digital unit called Telstra Digital Media which houses Telstra’s digital media assets, including end-to-end media capabilities from Sensis, BigPond, Trading Post, IPTV, Foxtel and its raft of content arrangements. The carrier poached TVNZ’s CEO Rick Ellis to head the unit and his mark is starting to reverberate.

Within the mahogany halls of Telstra, Ellis has made no secret of his ambitions to ditch the IPTV strategy and use Telstra’s NBN cash windfall to buy into a traditional media asset such as Network Nine or take a heftier stake in Consolidated Media Holdings.

A recent report from Morgan Stanley suggested that Telstra would be wise to look at investing in an asset in the range of $2 billion that was EPS accretive in its second year of investment. ®

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