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Telecom Corp. of New Zealand Ltd. (TEL.NZ) and Vodafone New Zealand, the local unit of U.K.-based Vodafone Group PLC (VODPF, VOD.LN), are now in commercial negotiations with the NZ government to provide broadband to rural areas, the New Zealand government announced Monday.

The government's rural broadband initiative aims to provide broadband services to 93% of rural schools and a minimum 5Mbps broadband service to 80% of rural households within six years and will provide a NZ$300 million grant for the project.

Listed-telecommunications company Telecom's share price has been under severe pressure after the government announced it was looking for private partners to build a new, faster network, as it threatened its position as the only provider in most rural areas. If Telecom's joint bid with Vodafone is secured this should give some relief to shareholders.

Minister for Communications and Information Technology Steven Joyce said he had advised officials that he wanted 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," said Joyce.

Once negotiations are complete, Telecom will be responsible for building the fiber network linking schools and hospitals, cell sites and rural exchanges and cabinets, while Vodafone will be responsible for the design and building of open-access tower infrastructure, the companies said previously. The new towers are also expected to improve mobile phone coverage in rural areas.

Telecom and Vodafone were one of five bidders for the project, expected to be rolled out in 2016.

Telecom said as their proposal was based on using existing infrastructure and building out from that infrastructure, their joint plan would deliver the quickest possible result.

-By Lucy Craymer, Dow Jones Newswires; 64-4-471-5990; lucy.craymer@dowjones.com

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