Wellington, Sept 29 NZPA - The Government wants to progress rural households' access to broadband and proposes reforming the Telecommunications Service Obligations (TSO) to achieve it, a discussion document shows.

Communications and Information Technology Minister Steven Joyce today announced the release of two discussion documents on the Government's rural broadband and the TSO.

Mr Joyce previously announced the Government would fund a $300 million rural broadband initiative.

He said today it would be funded through a $48m direct contribution, interim funding of $52m, and the rest through a new TSO.

The new TSO will be "a more transparent contestable industry-wide mechanism that focuses on developing rural telecommunications", Mr Joyce said.

The TSO levy has been in place since 2001 and involves the industry paying the levy which is paid back to compensate companies supplying service to rural customers.

There had been "considerable controversy" within the industry about the TSO and it needed to be more transparent, Mr Joyce said.

Changes to the TSO would not affect the obligation for companies to provide free local calls, he said.

"Likewise, there are no plans to further loosen rules around foreign ownership of Telecom."

The changes would see the amount gathered rise by $20m to $50m a year for six years.

"When the Government tenders for the provision of rural broadband it will be an open and competitive process, with full transparency on where the money is spent."

Telecom said it had been part of an industry-wide push to secure reform of TSO arrangements.

"This reform is long overdue and needs to be based on principles of contestability, transparency and technology neutrality," Telecom chief executive Paul Reynolds said.

"It is equally important that any subsidies applied to fund services to uneconomic customers are borne equally by all consumers, and not just Telecom's."

Federated Farmers welcomed the plan but said it was approaching it cautiously until more details were known.

"The rural broadband funding initiative announced today is critical to New Zealand's economic and social future," said the federation's telecommunications spokesman Donald Aubrey.

"Ensuring quality broadband reaches New Zealand's farms and rural businesses is of the utmost importance."

Mr Aubrey said the federation was wary about what would happen six years down the track, when the new levy ended.

"Although we understand the money raised from the levy will go into a contestable fund -- which is positive news -- will it be available for infrastructure beyond the rural school gate?"

The two discussion papers are open for submission until October 30.

The Telecommunications Industry Group (TIG) said the plan amounted to a $252 million industry tax.

"The Government has just replaced one form of taxation with another, in an industry where prices are dropping, margins are tight and customer expectations are increasing," said TIG chief executive Rob Spray.

"The TIG will be looking into ways to evolve this tax and pass it on, much as airport taxes or road taxes are passed on directly to customers."

However, Mr Spray said the TIG fully supported the development of a rural broadband initiative, as well as the Government subsidising the infrastructure where rollouts were not commercially justified.