Internet service providers are hoping for lower costs for broadband users once a new undersea fibre optic cable is laid - possibly within two years.
But it is still not clear yet whether the joint venture between state owned Kordia and ASX listed Pipe International will get a taxpayer subsidy.
Woosh Wireless welcomed the memorandum of understanding announced yesterday.
It said international connections make up a big part of the bill people pay for phone and broadband and competition is good news.
The only trans-Pacific connection is the Southern Cross cable which is jointly owned by Telecom and the US company Verizon.
The fibre optic cable from near Auckland - called PPC2 - will be co-owned by Kordia and Pipe International.
Pipe International is separately building a cable from Australia to Guam - called PPC1 - where it will connect to other trans-Pacific services.
PPC2 will join PPC1 at a "T-junction" 120km off the coast of Sydney, Pipe International said yesterday. Last November, telecommunications minister David Cunliffe said the Government would "look at" subsidising an undersea fibre optic cable to provide additional international connectivity for New Zealand.
Kordia may have been caught out by Pipe International's obligatory statement to the ASX and had not yet secured a subsidy.
Kordia played down the deal that it would have a majority share of the PPC2 but said final shareholding and business model had not yet been resolved.
Kordia secretary Michael Jamieson said the investment would be less than $100 million.
He declined to specify when it would be operating.
But Pipe International managing director Bevan Slattery said he expected the cable would be up and running by 2010 and it would be a boon, increasing capacity for global communications.
It would be up to ISP owners how it marketed those services, Slattery said.
The new fibre optic link would provide a lot of increased capacity for corporate broadband traffic between New Zealand and Australia.
Prospects for another fibre optic link had been canvassed before so Telecom chief executive Paul Reynolds will not be wholly surprised by new competition.
But its share of the Southern Cross monopoly has been a solid dependable source of revenue and the new player represents another question mark for Reynolds when he faces an analysts' briefing on Thursday.
One source said that New Zealand consumers had paid dearly for having only one link.
Around 90 per cent of internet traffic was between New Zealand and the US.
The source said that it cost one third less to get information from the US to South Africa than it did from the US to New Zealand.
The Business Herald could not verify this estimate at print time.
Internet New Zealand managing director Keith Davidson said there were too few details to be clear on the effect on charges for international connections.
The Telecommunications Users Association chief executive Ernie Newman said the Kordia-Pipe International venture was great news "not only for competition in New Zealand, but also from a risk management perspective".
"It will provide much needed diversity of routes in the event of catastrophic failure of existing cable networks and will provide real choice for service providers, said Newman.
"This in turn will be good news for users, who will benefit from greater capacity and more competitive pricing.
"International charges are often used by service providers as a reason for high data caps.
"A competing international cable that connects New Zealand - first to Australia and from there to cables around the world - should ease the restrictions placed on Kiwi's internet use."