Compere: An embarrassed Telstra is confronting something today; that its operation in East Timor is in breach of the local law.

Telstra went into Timor with the Interfet troops last September. It stayed on after Interfet's departure on a short-term with the UN to supply telecommunications. The UN, however, inadvertently outlawed Telstra's business and now everybody seems to be ducking for cover. Gerald Tooth reports.

Gerald Tooth: Mobile phones are big business in East Timor. There is no other real option after landline infrastructure was destroyed. With 10,000 United Nations personnel alone, there's more than a few users.

And Telstra has had a monopoly on their business since it came in to provide morale services to Australian troops last September. A situation that continues under short-term contracts with the UN, which is the temporary government in East Timor. But now Telstra's found that that monopoly is illegal.

Telstra Country Manager in East Timor Tony Reed.

Tony Reed: Well it means that it's just another issue that needs to be dealt with. I think that we've been in an environment virtually from the day that we came here of uncertainty and the prime objectives for us was to restore the communications here. If that presents a problem for us then it's a problem that needs to be addressed and we'll seek to address it.

Gerald Tooth: Telstra has fallen foul of the first regulation of the UN passed when it took over from Interfet. That reinstated Indonesian law as the law of East Timor until a government was elected. The foreign investment provisions state that any telco operating in the country must enter into a joint venture with East Timorese.

Telstra has not done this, and has no plans to do so at the moment. The UN administration, unaware that it had inadvertently outlawed the country's only telecommunications system, is floundering for a way to remedy the situation. The man in charge of infrastructure at the UN in East Timor is Bob Churcher.

Bob Churcher: We've inherited a situation which was not necessarily of our making and we're going to make the best of it there is, on behalf of the people of East Timor.

Compere: Bob Churcher of INTAET, and that's our program today; Gerald Tooth reporting there.