Five contenders for the Rural Broadband Initiative (RBI) have become three, as Communications Minister Steven Joyce announced the shortlist for the contract.

Torotoro Waea, FX Networks/OpenGate and Telecom/Vodafone have made the cut to provide the government-subsidised infrastructure for rural broadband.

Steven Joyce says all three bids have put forward innovative proposals, including joining forces to provide a more comprehensive service.

Federated Farmers telecomms spokesperson Donald Aubrey says the shortlisted candidates all have the capacity to develop a rural broadband service properly.

"Without the RBI the rural sector would struggle. It’s really important this initiative is taken to aggregate demand to obviously target schools and from that backbone to be able to provide a much better service to rural New Zealand."

Donald Aubrey says the Government needs to get the next stage of the process started quickly.

"[It's important] they get under way really quickly and one of the simple reasons is we know rural New Zealand provides the bulk of New Zealand exports so it’s in support of an incredibly important part of our economy."

Negotiations start later this month.

Binding contracts are expected to be signed in January.