TELSTRA'S possible divestment of Foxtel as a result of Federal Government legislation could spark a shake-up of the local television industry.

Telstra may be forced to part with its 50 per cent holding in Foxtel if it refuses to voluntarily separate under the Government's proposed industry reforms announced yesterday.

The remaining stake in the pay-TV entity is held by Sky Cable, an equal joint venture between Consolidated Media Holdings and News Corporation (the parent company of the publisher of news.com.au).

Analysts said today Sky Cable would be the most obvious benefactor of a Telstra sell-off, as they have first right of refusal over the remaining stake.

That could see Kerry Stokes' Seven Network become a part-owner of Foxtel, with Seven recently boosting its holding in Consolidated Media to 19.9 per cent.

Market observers believe Mr Stokes's desire for Foxtel fuelled his grab of Consolidated Media shares.

James Packer's Consolidated Press Holdings is the dominant shareholder at Consolidated Media at about 40 per cent.

Credit Suisse has valued Foxtel at about $3.8 billion, meaning it would cost Consolidated Media and News Corp about $950 million to boost their stakes to 50 per cent each.

News Corp has more than enough cash to fund such an acquisition, while Consolidated Media's recent $441 million sale of its stake in online job ads group Seek would assist its purchase, Credit Suisse said.

But such a situation is unlikely to unfold, with most analysts tipping Telstra to negotiate with the Government and agree to some form of separation, therefore avoiding the Foxtel divestment.

Telstra said at its most recent results presentation it places a high value on its Foxtel stake.

News Corporation is the parent company of the publisher of news.com.au.

Blacky wrote:wait until this fibre is rolled out! foxtel will be one of the many pay tv providers fighting for a bit of bandwidth! Im all for healthy competition and a bit of a shake up!