It is already the most expensive infrastructure project in Australia's history, and it seems the final cost of the National Broadband Network could blow out by billions.

Tonight's Four Corners program reveals how a poisonous relationship with Telstra led the Government to bypass the private sector and build a world's best, top-dollar broadband network itself.

Labor had originally intended a cheaper network but dropped the plan after learning it would have to pay tens of billions of dollars in compensation to Telstra.

Four Corners has also confirmed Telstra had planned to retaliate by building its own rival network in city areas, killing the value of the Government's investment.

If it goes ahead as planned, the NBN will roll out fibre optic cable, capable of delivering superfast broadband to more than 90 per cent of premises.

But back in 2007, that was not plan A. Instead, Labor was planning a cheaper option known as fibre-to-the-node.

But there was trouble looming, with a capital 'T' - Telstra.

"You've got to remember, this was in the period of Sol Trujillo and Phil Burgess. They had waged a war against the Howard government and its telecommunications policies," Communications Minister Stephen Conroy said.

Labor's plan was to lay fibre optic cable to cabinets on street corners, then connect it to Telstra's copper wire network that currently delivers phone and broadband to most Australians.

But the plan was derailed by some shock legal advice.

"If we were to go ahead with the fibre-to-the-node proposal, we would essentially have to - not to put too scientific a point on it - cut the copper," Senator Conroy said.

"That would have meant effectively that we would have appropriated Telstra's property rights and under our constitution, you have to have fair compensation if you take someone's property rights.

"No expert in the field would give us a suggestion that the sort of bill you'd pay to Telstra was anything less than $15-20 billion."

Experts advising the Government also warned that "a company" - read Telstra - could retaliate by building its own separate network in profitable city areas, killing the value of the Government's investment.

"The Government could spend $15 billion to build a fibre-to-the-node network, pay $15-20 billion to Telstra for compensation, and then Telstra could take that money and build a fibre-to-the-home network past you and strand 70 per cent of $15 billion on the side of the road," Senator Conroy said.

Phil Burgess, the right hand man to former Telstra boss Sol Trujillo, has told Four Corners that was exactly what Telstra would have done.

"Absolutely, that's the way competition works," he confirmed.

"The only way it'll be stopped is if they have laws that prevent it."

Mr Burgess says Telstra became suspicious of Labor's intentions after meeting with Kevin Rudd and his political adviser, David Epstein, in the lead-up to the 2007 election.

"David Epstein said, 'Let's get the 800-pound gorilla off the table - are you guys willing to divest Foxtel and to structurally separate Telstra?' That's when they let the cat out of the bag," he recalled.

The NBN may have achieved structural separation of Telstra, but it is a very expensive way to go about it.

Tune in to Four Corners on ABC1 tonight at 8:30pm AEST.