Telecom said today that Yahoo would replace Microsoft's MSN as its online partner for its internet service, Xtra.
The partnership is with Yahoo!7 and will be called Yahoo! Xtra.
Yahoo!7 and the Seven Network of Australia will have majority control of the venture with 51 per cent, while Telecom will have 49 per cent.
Telecom chief executive Theresa Gattung had signalled the change last week acknowledging it was "the worst kept secret in town".
She said the partnership would provide an enhanced suite of online content and services.
Analysts believe Yahoo is also a front runner to purchase Telecom's directories unit, Yellow Pages, which is on the market and expected to sell from between $1.5 billion and $2 billion.
Ms Gattung had a proven track record of partnering other leading telecommunications companies including BT in the United Kingdom, Rogers in Canada and Verizon in the United States.
Telecom chief operating officer of consumer business Kevin Kenrick said customers would get mail, enhanced spam and virus protection management, online photo sharing, localised news and internet radio properties progressively.
The Yahoo! Xtra joint venture will replace the existing XtraMSN site from March 1.
Yahoo!7 chief executive Ian Smith said the partnership would bring significant change to the New Zealand online landscape.
The joint venture company would have a board of six with Telecom providing three members and Yahoo!7 providing three members including the chair.