A Telstra spokeswoman has said the increase is in recognition that, historically, the company has "charged less than what it costs to provide the service" and that it adheres to the regulations administered by the Australian Competition and Consumer Commission (ACCC).
"Under current price control guidelines set by the government and administered by the ACCC line rental can increase by CPI [consumer price index] plus 4 percent, while call costs need to fall by CPI minus 4.5 percent," the spokeswoman said.
The ACCC has stated that its duty in the matter was to "look into their [Telstra's] processes to see if they have followed the price control determinations set out by the government"; a task that, they say, was conducted before the increased prices were announced.
The most popular Telstra fixed line plan, HomeLine Plus, has increased its line rental fee from $25.50 per month to $29.95 per month, adding an extra $41 to customers' bills per year.
IDC research program manager, Landry Fevre, says the increase was a "last ditch attempt" to increase the companies revenue before telephone landlines become obsolete.
"Mobile costs are becoming more competitive to fixed line phones and so they want to make some money before customers get rid of their fixed line all together," said Fevre, adding that VoIP will also become a major catalyst in the expiration of fixed line phones.
Telstra has also introduced a credit card payment processing fee ranging from 0.63 percent to 1.69 percent of the payment's total amount depending on the type of credit card used.
Both Optus and AAPT do not charge a credit card levy, yet Telstra says the fee has been introduced to recover some of the costs it pays to the credit card companies for the services
The Telstra spokeswoman states that if customers wish to avoid the fee there are many other payment options.
"There are 14 other payment options other than using credit cards, so if customers are concerned they can use one of the other methods," said the spokeswoman.
Prime Minister Howard has told Melbourne radio station 3AW that he believes the telco should be fully privatised to prevent him from being put in the "ridiculous" position of having to address the company's price rise.
"I find myself in this ridiculous position of in effect having to answer for the company and I don't want to run, and wouldn't be able to run, as prime minister ... it's a ridiculous situation that Telstra remains in majority government ownership," Mr Howard told 3AW. "We believe that Telstra should be fully privatised and it would then be fully accountable in a total sense."
Competing provider Primus Telecom responded to Telstra's fixed line rental price by announcing a new residential phone plan that does not charge individually for local calls.
The deal has bundled line rental, unlimited Internet and local call fees for a standard price of $55 per month, waivering the typical 16 to 20 cents charged by providers per local call.
However, Telstra says it expects customers to "recognise the benefits of staying with Telstra" in the many "rewards" it offers to loyal customers.
Telstra maintains that no further price increases are planned at this time, however the spokeswoman says the company will continue to watch the market for further adjustments.
"These prices are generally being changed because we are trying to keep in line with the market," the spokeswoman said.
Telstra says it expects a "basic" increase in phone line access revenue following the price hike.
However, Fevre says that the company may expect a substancial increase in revenue as it currently holds 71 percent of the $9.9 billion telecommunications market, with 77 percent of its share stemming from local revenue.