To the surprise of no one, the government has officially entered into negotiations with Telecom and Vodafone over the joint RBI bid that was pitched for last November.

"The government specifically asked for parties to consider collaborating on joint bids to reduce construction costs – and this bid does just that,” said Communications and Information Technology Minister Steven Joyce.

"Currently 20% of customers in rural New Zealand can access speeds of at least 5 Mbps. This will rise to 86% of rural households and businesses, with 95% of rural schools receiving ultra-fast connection.  The extension of the fibre backbone into rural areas means more customers living on the fibre routes may be able to get fibre-to-the-door,” he continued.

"For many remote and not-so-remote rural areas this will be light years ahead of where they are today and will ensure they participate in the promise of the digital economy."

The bid involves an extension of Telecom's fibre network to deliver fixed wireless and fixed wire broadband to 252,000 customers in rural New Zealand, and the construction of 154 fibre-connected cell phone towers.

This will bring fixed wireless broadband to rural customers as well as improved mobile coverage, and the direct connection of 719 rural schools to fibre networks.

"The joint proposal was the only one that increases mobile coverage, and it will ensure serious competition in the last mile with many rural customers being able to choose from fixed wireless, ADSL2+ and mobile broadband,” Joyce added.

Negotiations will be undertaken over the first quarter of 2011 with the roll out due for completion by 2016.

"I have advised officials that I am seeking contracts to be signed with Telecom and Vodafone for their separate parts of the proposal by the end of this quarter. Should that not prove possible for any reason, the Government reserves the right to re-tender for the contract,” Joyce warned.

Unsuccessful bidders are being asked to start working with Telecom and Vodafone on ways to enhance the RBI initiative.

Update: Telecom and Vodafone have since released a joint statement saying that they will compete "fiercely” for rural customers.