OMFG! To create a level playing field in Australia’s telecommunications sector, there was no question the government needed to deploy a bulldozer against the monumental presence of Telstra. But today, well, it’s more like nuclear warfare.

What stands out in Senator Stephen Conroy’s media release and the legislation to be introduced to Parliament this afternoon is the stark choice being offered Telstra: split your wholesale and retail operations or you don’t get any more wireless spectrum. NextG, a 3.5G wireless network, is the jewel in Telstra’s crown. Seven-owned Vivid networks starts rolling out 4G wireless in Perth from March 2010. If Telstra wants to upgrade and extend NextG — and it must if it’s to stay market leader or, in time, even a player — it needs that spectrum. There is no choice.

Telstra knew what was coming.

“Without revealing the extent of the negotiations and the discussions, they were very well prepared already when we had our first meeting,” Conroy told reporters.

“This will not be an easy commercial negotiation, but what we’ve seen is a change in attitude from Telstra. They’ve taken the view that what the government is trying to do is a good thing.”

Conroy’s comments also reinforced much of the government’s vision of how the National Broadband Network fits into its world view, and its criticism of the costings that  suggest end users of the NBN might end up paying more than $200 per month.

“Henry Ergas, he’s recently been structurally separated from his own company, I understand,” Conroy joked.

“The sort of assumptions that were built into many of the models that Henry used were just fanciful. They took the $43 billion, they set a 20-year time life for the assets rather than the 30 years, they said you’ve got to get a 15% rate of return ignoring the fact that we’ve always believed it’s an infrastructure.”

Conroy pointed out Internode is already selling 100Mb/second fibre in some locations for about $100 per month, with Australia’s third-largest ISP iiNet talking about that sort of price. He quoted Optus modelling that suggests the NBN will cost $27 billion to $30 billion to build, with an end wholesale price about $60 per month.

“We’ve always believed that those fanciful figures of around $200 were nothing more than political opposition for political opposition’s sake,” said Conroy.

Conroy also pointed to the hidden extras in existing broadband plans, such as additional data charges, and believes that real users pay a lot more than the quoted prices. Apparently the ACCC is talking to the industry about “truth in pricing” rules.

The government considers wireless broadband and optical fibre to be complementary technologies, rather than competitors — something Crikey pointed out in April.

But the key sound bite Conroy was repeating was that we’re in the dying days of the copper era and entering the fibre era. If Telstra wants to be part of that era, it’ll have to be a very different beast.