Awarding Telecom and Vodafone the task of building the rural broadband network could stifle competition and lock others out of the market, say industry players.

The Government announced yesterday that it was entering into commercial negotiations with the two telcos to bring faster internet to rural communities.

The deal is not finalised and is subject to the success of ongoing discussions.

The broadband initiative hopes to connect 93 per cent of country schools to fibre, providing speeds of at least 100 megabits per second.

Eighty per cent of rural households and businesses would receive speeds of five megabits per second or better.

The broadband build will take six years and cost an estimated $285 million.

It will increase productivity by revolutionising the way farmers can gather and use information about their crops and stock.

Shortlisted bidders which missed out on the scheme include OpenGate, made up of state-owned enterprise Kordia, Woosh Wireless and FX networks, and Torotoro Waea which is a partnership between iwi groups and industry.

The Government reaffirmed yesterday that if Telecom and Vodafone build broadband infrastructure, other providers will be able to use the network and offer internet services to rural customers.

"I have been clear that strict open access rules will be included in any contract," said Communications Minister Stephen Joyce. "This will promote healthy competition in both the rural wholesale and retail broadband markets."

However, web watchdog internet New Zealand said further safeguards are necessary to ensure competition can thrive.

"The open access obligations that have been proposed are, like those set out for the ultra-fast broadband initiative, far from strong," said internet NZ chief executive Vikram Kumar.

"This will unfortunately limit retail service providers' ability to compete with the infrastructure providers themselves, who are the major retail providers in rural areas," he said.

"What is the nature of the proposed open access? Will it guarantee that access is good enough for [another company] to provide a viable service?" he asked.

Telecommunications Users Association head Paul Brislen said there are different types of open access, and the Government must take the option which enshrines competition.

"Open access isn't just one thing to all players, there are a range of options. We really do want to have the situation where any telco can offer any service," Brislen said. The rejected OpenGate bid would have made it easier for other providers to connect with rural customers, he said.

"Telecom and Vodafone are providing open-access to other telcos to put their own equipment. OpenGate are providing open access directly to the customer, and [would] let customers decide who to use. It's quite a different model and it bears more discussion. Yes Vodafone and Telecom's model is open-access, but it's quite costly open access, you need to have capital to use [their infrastructure]," he said.

Federated Farmers chief executive Conor English also had reservations about competition within a Vodafone and Telecom-built network.

"If you've got two incumbents and they're just going to get bigger, then naturally that does raise competition concerns," he said.

Following the Government's announcement, OpenGate lashed out, claiming the decision "greatly diminishes competition by handing over the fixed broadband market to the incumbent mobile duopoly".

Kordia chief executive Geoff Hunt also accused the winning bidders of being champions of old technology who would deliver "an unnecessarily poor customer service experience".

Joyce dismissed both of these claims.

"[Vodafone and Telecom's] bid meets the full open-access requirements," Joyce said.

"The OpenGate bid proposes using 4G technology. To flip it on its head, if we went with their proposal I think we would be roundly criticised by all and sundry for proceeding with what is ultimately reasonably unproven technology at this point."

THE PLAN
* Internet speeds of 100mb/s to health centres and 93 per cent of rural schools.
* Internet speeds of 5mb/s to 80 per cent of rural homes and businesses.
* In cities, speeds are now between 2 and 5 mb/s (to be extended to 100mb/s in the Government's ultra-fast broadband scheme).
* Telecom and Vodafone are negotiating with the Government to build the network - a final deal is expected in March.
* Will cost $285 million (with $48 million funded by the taxpayer).
* Will be operational by 2016.