Prime Minister John Key says the Government remains firmly committed to the rollout of ultra-fast broadband.
A ruling by the Commerce Commission on the price of services over the old copper lines has prompted networks owner Chorus to issue a warning about the impact on its books and on the broadband project overall.
The commission issued a final determination on Tuesday which said the fair price for broadband and voice services over copper wires is 23% less than its current cost.
At present, the wholesale price for the services is $44.98 a month and the commission says it should be $34.44. That is still $3.06 below the bottom of the Government's proposed range of $37.50 to $42.50.
Chorus says the new price could cause it to default on its bank lending, jeopardise the ultra-fast broadband rollout and cost it $1 billion by 2020. It says it intends to discuss its ongoing ultra-fast broadband partnership with the Crown and warns that without intervention, any potential benefits to New Zealand will be compromised.
Telecommunications commissioner Stephen Gale says he has not given in to political pressure in raising the price, and that a key factor was the impact on investment in such developments as the ultra-fast broadband network.
"Underestimating a regulated price can deter investors and that's not good for consumers in the long run," he says.
Prime Minister John Key says all options are on the table in response to the commission decision on pricing, including a government subsidy in return for an equity stake in Chorus. Another possibility is for the Government to legislate and override the price set by the commission.
Mr Key says this is a serious matter for Chorus, which could potentially be in breach with its lenders. "That could have very significant implications in their capacity to fulfil their obligations under their ultra-fast broadband contract with the Government."
Mr Key says the Government will take advice on the best way to proceed. "The Government has a range of options available to them; some are more palatable than others. What is true is the Government certainly passionately cares about ultra-fast broadband."
The Labour Party says any intervention by the Government on copper pricing would be detrimental to the taxpayer and the regulatory process should be allowed to run its course. Leader David Cunliffe says the Government should not intervene, regardless of the consequences.
Cheaper for users, says lobby group
A lobby group campaigning for cheaper internet connections says broadband users stand to save tens of millions of dollars a year under the Commerce Commission's ruling.
The Coalition for Fair Internet Pricing says that, overall, it means that homes and businesses will pay $104 million less for those services.
Spokesperson Jordan Carter says internet providers will pay Chorus about $10 less each month per customer.
Mr Carter says that saving can be passed on to them, or data caps could be increased. He says the worst thing that can happen is the Government intervening with its own pricing.
Internet retailer Orcon, a member of the lobby group, says it will pass savings onto consumers. Chief executive Greg McAlister says he can guarantee that internet users will benefit.
"There are a couple of natural monopolies sitting there - being content to the rest of the world and content from the exchange to the home, being the copper that Chorus has. Those things, I believe, have been overpriced.
"It's great to see the Commerce Commission coming out now and looking at these products and saying these are the cost-based ways of looking at it and this is what a reasonable return should be."