"If Telstra was trying to have the SME plan accepted after the deadline it must have known that its bid was non-compliant as submitted on November 26. The developments at the weekend show why the government's process -- and Australian citizens -- cannot be held hostage to the bullying teams of Telstra lawyers," he said.

Industry experts suspect the telco excluded the SME plan from its bid to force the government to bend to its regulatory whims, or cut it from the NBN selection.

One insider requesting anonymity told Computerworld Telstra "deliberately left out the SME [plan] so it could whinge about being cut out of the bid on a technicality".

Local telecommunications analyst Paul Budde said the government was forced to ban Telstra to maintain the integrity of the NBN process.

"[Minister] Conroy just had to say 'enough is enough'. He couldn't take Telstra's bullying and so they were banned from the bid," Budde said.