Australian telecommunications giant Telstra has formed a strategic alliance with Hong Kong-based Pacific Century Cyber Works (PCCW), the largest Internet group in Asia outside Japan.

The billion dollar deal creates one of the largest Internet, data and business services groups in the pan-Asian region. It covers an Australian-based interactive content service, to be distributed globally, and an agreement for PCCW's Network of the World content to be used in Australia. It is subject to several preconditions, including the successful completion of PCCW's acquisition of Cable & Wireless HKT.

The move is expected to impact on Australia's pay-TV market. Telstra owns 50% of dominant cable operator Foxtel and is reportedly flirting with regional player Austar.

Murdoch was also set to strike an alliance with Cable & Wireless HKT before Richard Li, chair of PCCW parent company Pacific Century Group, waded in. Murdoch is one of many players expected to provide content to the new entity.