The Telecommunications Users Association says an alliance between Vodafone and the Canadian broadband operator, Axia Net Media, will be worrying for Telecom.
Axia and Vodafone have lodged a joint bid for funding from the Government's $1.5 billion roll-out of ultra-fast broadband, with Vodafone taking a minority stake in the planned venture.
TUANZ chief executive Ernie Newman says Vodafone has formed the partnership because Government rules mean retailers cannot bid for funding.
He says Telecom faces the same constraints and the Vodafone-Axia bid presents a serious challenge.
Mr Newman says many other players are also seeking funds, which he considers to be an endorsement of the project.