UPDATE 1-Australian fund sees risks to Telstra shares

* Top shareholder seeks clarity over government breakup plan

* Says could also be benefits

CANBERRA, Oct 20 - The Australian government's plan to break up phone company Telstra Corp <TLS.AX> poses significant risk for the shares, the phone company's largest shareholder said on Tuesday.

Australia's sovereign fund, the Future Fund, also said it was too early to fully assess the impact of the government's plan.

The fund's general manager, Paul Costello, said the fund was assessing a range of potential outcomes for Telstra. It holds A$4.3 billion ($4 billion) worth of Telstra shares.

"I think there are significant negative risks for Telstra, and we would share the view that there are significant risks," Costello told a twice-yearly Senate hearing into the activities of the fund. "What we also think, is that depending on the outcome of discussions, there may be upside benefits. As we see it, there is a lot of further work being done on this."

The government has announced plans to force Telstra to split its wholesale and retail arms, or risk losing access to additional wireless broadband spectrum, as part of a plan to build a $37 billion national broadband network.

Telstra, a former state monopoly privatised in 1997, dominates Australia's telecoms industry and has constantly been challenged by rivals for stalling on providing access to its network and for charging unfair access fees.

It has frequently clashed with the government and regulators.

The Future Fund sold 34 percent of its Telstra holding in August at A$3.47 a share and said it would not sell any more for six months. It retains 10.9 percent of the company.

Telstra's shares were last trading at A$3.13.

Costello said the Future Fund, like all shareholders, wanted more clarity on how the government's plan would play out.

The Future Fund, set up to cover pension payments for civil servants, had assets worth A$64.25 billion as of Sept 30. ($1=A$1.08)