After suffering only moderate damage on the ASX most of yesterday, Telstra’s shares crashed at the close to record the company's biggest one-day fall since its 1997 float.

The collapse came as Communications Minister Stephen Conroy took a sledgehammer to the company's spin machine, saying the telco has sidelined itself for a decade by "excluding itself" from the National Broadband Network. Rivals sniff a historic chance to break Telstra's near-monopoly.

Before the market opened, Telstra issued a statement advising that it had been excluded from the RFP for the federal government’s proposed $A4.7 billion National Broadband Network (NBN).

Telstra chairman Donald McGauchie labelled the government’s reason for excluding the telco – that it had not submitted a plan on how it would involve Australian and New Zealand small and medium enterprises (SMEs) in its network build – as “trivial” and “legally questionable”.

Telstra CEO Sol Trujillo was more diplomatic, saying "It is too early to rule anything in or out, and we remain hopeful that sense will prevail outside the RFP process”.

The company’s shares were down on heavy trading on the ASX, but the damage was limited within a 5% to 6% fall for most of the session. Telstra's spin looked successful.

Sidelined for a decade
But early afternoon, Senator Conroy issued a gloves-off response to Mr McGauchie’s latest taunts, indicating he was not about to open dialogue with anyone at Telstra outside the RFP process.

"Telstra's board will have to explain to its shareholders why it has decided to sideline itself from a process that will shape the Australian communications sector for the next decade," said Senator Conroy.

The Senator has previously been a model of Jane Austin-style restraint in his replies to the often frothing-at-the-mouth McGauchie.

Shares plunge
Following Mr Conroy’s comments, Telstra's decline accelerated. Its shares closed 11.62% down at $A3.65, falling right up to the bell to close at their lowest mark for the day and a two-year low.

The fall was Telstra's biggest one-day decline in a decade.

By contrast, shares in Optus owner Singtel were up on anticipation that Australia's second largest telco now has an opportunity to break Telstra's near-monopoly.

Mr Conroy’s statement attacked all facets of Telstra’s participation in the RFP (in which the telco did not submit a full bid, instead deliving a 13-page letter to Mr Conroy, which included political demands such as a no separation guarantee), and indicating no immediate reconciliation is likely.

"The Rudd Government stands ready to take the tough decisions necessary to ensure that the telecommunications sector delivers what the nation needs for its long term economic prosperity," Senator Conroy said.

"The Government's NBN process has always been bigger than Telstra," he continued.

The minister said Telstra “excluded itself from the NBN process for failing to submit a Small and Medium Enterprise (SME) Participation Plan”, which is one of five mandatory requirements of the RFP.

"The RFP was specifically designed to give proponents flexibility in preparing their proposals, and there are very few mandatory requirements," Senator Conroy said.

These mandatory requirements are that:

1. Proposals are written in English;
2. Australian legal units of measurement are used;
3. Proposals include a complete and signed Proponent's Declaration;
4. Proposals for more than one State or Territory must include a proposal for all States and Territories; and
5. Proponents submit a plan outlining opportunities for Australian and New Zealand SMEs to provide goods and services to the project.

"There was nothing to stop Telstra from submitting a complete proposal and competing vigorously with other proponents in this process," Senator Conroy said.

"Instead, the Telstra Board failed to comply with the mandatory requirements of the RFP.

"Industry was offered the chance to compete on a level playing field under the RFP. However, the Telstra Board sought special treatment by proposing its own process."

The Minister has also confirmed that the five proponents who have made public statements about their participation in the process Acacia, Axia, Optus-Terria, TransACT and the Tasmanian Government have all met the requirements and conditions for participation.