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THE Rudd government is likely to back away from its more extreme...

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    THE Rudd government is likely to back away from its more extreme legislative threats to Telstra if a deal can be quickly reached with the company on the $43 billion national broadband network project.

    The Senate is due to begin consideration of the government's telecommunications changes this week and Telstra and the Opposition are both calling for the bill to be delayed until next year.

    But behind the scenes, the pressure is on Telstra to negotiate an agreement within six weeks to avoid the government pressing ahead with some of the more onerous powers in the bill.

    These powers give Communications Minister Stephen Conroy wide discretion to block Telstra gaining more spectrum for its wireless network and to force Telstra to sell off its share of Foxtel and the HFC cable.

    These big threats to Telstra's future growth were always part of the government's armoury to ensure the company agreed to structural separation of its wholesale and retail arms -- a fate it had fought so hard to avoid.

    But Telstra has effectively given up the fight on separation and the detailed negotiations now are all about the price it should receive for selling assets to the new government-controlled company, NBN Co.

    Senator Conroy said yesterday that he was not in a position to pre-empt discussions but that Telstra under chief executive David Thodey and chair Catherine Livingstone had engaged in a very constructive approach. "That is to their credit because this is a significant shake-up but they have engaged meaningfully and constructively with the government," he said on Network Ten's Meet The Press.

    "There are billions of dollars at stake in very sensitive commercial negotiations. What David and Catherine are doing is representing Telstra's interests as you would expect them to do."

    The bill gives the minister the option of imposing punishments no matter what deal is reached, and Telstra says this will only make it harder to sell any agreement to shareholders.

    But privately the government is holding out the carrot of removing those threats from the bill, because they would be made irrelevant by a deal on structural separation and the national broadband network.

    The catch is that Telstra has to first do the deal on terms the government finds acceptable and according to a tight timetable.

    While the opposition will try to delay or amend the bill, it is not clear if it will have the numbers to do so -- even assuming the Nationals can be held in line.

    That means the bill's fate is likely to rest with the two independent senators -- Nick Xenophon and Steve Fielding -- whose support is uncertain. A Senate committee review into the bill is due to report today.

    But passage would be almost automatic if Telstra and the government came to a broadband deal before the bill was voted on and the government agreed to amend some of the more contentious provisions giving the minister such broad discretion.

    Several big institutional investors in Telstra have complained loudly about the impact of the government's actions on the company and called on the board to do more to protect shareholder interests.

    Telstra and the government have been suggesting they want to reach a deal by Christmas, but the government is aiming for a few weeks earlier than that in order to get an agreement and the legislation through this year.

    The Senate is due to finish sitting on November 26 but is widely expected to come back for an extra week in December because of the workload.

    But all this only increases the pressure on Mr Thodey to get a reasonable price for the assets that Telstra will be selling to the new NBN Co.

    The most significant of these assets are the ducts and trenches which will make the massive project cheaper and quicker to roll out, as well as the Telstra customers and cashflow that can be migrated to the new fibre network over time.

    There is still considerable argument about whether Telstra will be able to sell its existing copper network to NBN Co, but the government will be determined to avoid paying a high price for an asset that will soon be made redundant by fibre.

    Mr Thodey will face sharp questioning on this issue on Wednesday when he holds the company's annual investor day.

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