MELBOURNE - AUSTRALIA'S largest phone company, Telstra Corp, said on Monday a government panel had rejected its plan for a national high-speed broadband network, knocking its shares to a two-year low.

Telstra said the rejection of its Request For Proposal (RFP) plan for the Internet network, expected to cost around A$10 billion (S$9.8 billion), was based on a technicality and that it is still willing to be in the running to build the network.

'It is too early to rule anything in or out, and we remain hopeful that sense will prevail outside the RFP process at a later date,' Telstra Chief Executive Sol Trujillo told analysts on a conference call.

Telstra shares fell 7 per cent to a low of A$3.84, its lowest since December 2006, sharply underperforming a 3.6 per cent jump in the broader market. By 0045 GMT (8.45am Singapore time), the stock was down 5.8 per cent, or 24 cents, at A$3.89.

Mr Theo Maas, partner at Fortis Investment Partners, said the decision showed the government was prepared to call Telstra's bluff.

'Telstra have played a pretty high-stakes game, and so far they've lost,' he said.

But Telstra was likely to still be in the running, as its proposal was currently the only one that detailed how the NBN would be funded, Mr Maas said.

Six firms registered interest by the Nov 26 deadline, including Telstra's main rival Optus, owned by Singapore Telecommunications Ltd and backed by a consortium of smaller players.

The government panel reviewing proposals for a high-speed broadband network, covering 98 per cent of the population, dumped Telstra's plan because it did not include smaller businesses.

'We are a bit surprised at taking this action on a triviality,' Mr Trujillo said.

Mr Trujillo said he hoped the Minister for Broadband Stephen Conroy would reverse the decide to exclude Telstra.

A spokesman for Mr Conroy said a news conference would be held to respond to Telstra later on Monday.

Mr Trujillo said Mr Conroy could ignore the panel's recommendation to exclude Telstra, if other alternatives were not workable.

Australia has slower and more expensive Internet than many developed countries, and the government has pledged A$4.7 billion to help build a broadband network to cover the country's vast distances and inhospitable terrain.

Telstra has pledged to match the government's money with A$5 billion of its own, and it claims it is the only company with the infrastructure and financial muscle to build the NBN.

Mr Trujillo played down any short- to medium-term impact on its business, as it will take some time before anyone starts building the network and then it would take around five years to build across the country.

'In which case, any real impact on Telstra, even assuming we don't respond - and, of course, we will respond competitively - is years away,' Mr Trujillo said. -- REUTERS