Telstra has been forced to abandon a plan to pump up shareholder returns with billions of dollars in NBN after the government company objected.

The ASX-listed telecommunications giant said a proposal to financially engineer its NBN payments, which it floated to shareholders just two weeks ago, and which was"well progressed and supported by equity and debt investors" could not proceed after NBN would not grant its consent.

It amounts to another setback for the listed telecommunications giant which recently confirmed plans to cut its cherished dividend for the first time in nearly two decades.

At its annual results a fortnight ago, Telstra said was considering a plan to pool together some of the payments it will receive as part of the NBN rollout, into a security that would be sold on to debt investors.