The decision follows month of negotiations with private consortiums under the NBN tender.

"We have tested the market but that has not produced an outcome which makes the best use of the taxpayers' dollar," Rudd said. "Right now we are dealing with a capital constrained world. We have acted on the advice of an expert panel... otherwise we wouldn't be here."

"There were two options -- sit back, or get on and do it. And we intend to [get on and] do that."

The first step will see the Government outlay A$250 million and build a fibre optic backbone in regional Australia, Senator Stephen Conroy said.

"The conditions are that it is open access and wholesale only," he said. "We will have an implementation study over the next eight or nine months to work out the issues and challenges."