SmartHouse has also been told that Consolidated Media, a shareholder in Foxtel and the Seven Media Group, has discussed a potential merger with the combined companies then launching a new subscription TV service in partnership with either an overseas group or News Corporation.

Last year, according to recent reports, Foxtel CEO Kim Williams proposed a $4.5 billion dollar merger with James Packer and the Rupert Murdoch-backed Premier Media, which has the rights to a lot of the sports content seen on the Foxtel Network.

The deal would have resulted in Telstra losing its cable revenue stream, while also being relegated to being an equal shareholder in Foxtel alongside News Corporation and the Packer-owned Consolidated Media.

The Foxtel revelations come only days before Telstra CEO David Thodey is set to update shareholders on where Telstra is at in their discussions with the Federal Government over the role out of the National Broadband Network.

Telstra insiders have told SmartHouse that the structure for a Telstra deal with the Federal Government has already been agreed, which is why the Federal Government delayed the introduction into  Federal Parliament this week of a bill designed to break up Telstra.

This is the second time that the government has delayed the passage of the bill, which proposes crucial changes to regulation of the telecommunications market.

Yesterday Thodey was in Canberra to talk with politicians and public servants over the proposed deal, with Foxtel being a key part of the negotiations.

During the past 18 months, Telstra has moved to establish a separate content network. It has secretly negotiated content deals with major overseas suppliers including news, movie and sporting organisations. It has also introduced a new TBox media centre, which is set to be rolled out in Australia later this year. Currently the TBox is undergoing testing in Melbourne, where Telstra recently launched a new high-speed fibre network.

Speculation is also mounting that Consolidated Media and the Seven Media Group could merge. Seven Media Group is 47 per cent owned by Seven Network, which already has two representatives on the Consolidated Media board.

One concept that has been discussed among Seven Media Group and Consolidated Media is the possibility of the merged group then cutting a deal with News Corporation to establish a 50/50 joint venture to deliver a new subscription TV service in Australia to rival Foxtel.

Content would be delivered over a TiVo-type media centre either via a broadband network or Satellite similar to what Foxtel is proposing.

A key benefit to the new Group would be Premier Media, which has the rights to various sporting events around the world. This, coupled with the sporting events that Seven Network and News Corporation could deliver, would make the new service a formidable competitor to both Foxtel and any proposed network that Telstra is able to deliver.