Australia's biggest phone and internet provider, Telstra, has had a combative relationship with the government for years. (Tim Wimborne/Reuters)

The Australian government has announced major reforms to Telstra, telling the telco giant it must split its infrastructure and retail arms or be blocked from gaining more wireless broadband spectrum.

If Telstra, the country's biggest phone company, does not voluntarily restructure the organization, the government will legislate a split and force Telstra to sell off its cable network and 50-per-cent share in satellite TV provider Foxtel.

Since the announcement, Telstra shares have fallen 4.31 per cent to $3.11 AUD ( about $2.90 Cdn) share.

Opposition broadband spokesman Nick Minchin said the government's moves are "radical" and "risky" and will disadvantage investors.

"I think what the government may well be doing is using the fiction of its $43-billion [AUD]national broadband network proposal to force change on Telstra," he said.

"Instead of holding a gun to the head of Telstra, destroying shareholder value, threatening shareholders, customers and employees, it should sit down and work through co-operatively with [chief executive officer] David Thodey and the new management team at Telstra."

In April, the Australian government announced it would build its own fibre-to-home network through private-public partnership funding after it scrapped the tender process.

But it will want Telstra's involvement in the rollout to take advantage of its assets and expertise and to avoid costly duplication of infrastructure.

Opposition Leader Malcolm Turnbull used question time on Tuesday to ask Australian Prime Minister Kevin Rudd to show how the $43-billion AUD ($40 billion Cdn) proposal will deliver value for money.

"How many subscribers will it have, and what will they be asked to pay?" he said.

"How can Australians have confidence in the government's capacity to deliver value for money when it is willing to spend $43 billion of taxpayers' money without even a business plan?"

Rudd dismissed Turnbull's questions, accusing the Opposition of doing nothing to give Australians faster broadband.

"The reason the government took the extraordinary step of saying that we would build a national broadband network is that we have seen 12 years of conspicuous failure on broadband on the part of those opposite," he said.

Earlier, Communications Minister Stephen Conroy said the government and Telstra were already holding talks about its restructure and involvement in the NBN.

But he said negotiations would be "hard-nosed".

Legislation to be introduced into Parliament will also force Telstra to comply with minimum standards or face a $10 million AUD ($9.33 million Cdn) fine, and the powers of the Australian Competition and Consumer Commission will also be strengthened to deal with anti-competitive behaviour in the industry.

The Australian government is following in the footsteps of the British and New Zealand governments, which forced the splitting of their respective phone incumbents, BT and Telecom New Zealand. Several European governments are also considering similar moves.