Australia cleared a key hurdle on Thursday in setting up a $38 billion high-speed broadband system after phone operator Telstra agreed to rent out its network for the nation's biggest infrastructure project in decades.

The deal is a boost for Prime Minister Julia Gillard's deeply unpopular minority government, which has made improving patchy and expensive internet services across a country the size of western Europe a key policy platform.     

One business group welcomed the National Broadband Network's A$11 billion ($11.6 billion) deal with Telstra and a similar A$800 million agreement with rival Optus, owned by Singapore Telecommunications , which was also unveiled on Thursday.

"Australia is a very remote country, and the possibilities of the NBN are enormous, so businesses are very keen to embrace it," Heather Ridout, chief executive of the Australian Industry Group, told Reuters.

The project aims to bring high-speed Internet access to more than 90 percent of Australian households using fibre-optic cable, with the rest serviced by wireless or satellite.

Broadband speeds in Australia are below the OECD average at 32.4 Megabits per second. Just over 60 percent of Australian households have a broadband connection, similar to New Zealand and the United States, but well behind South Korea on about 95 percent.  

The deal still needs approval from a vote by Telstra shareholders on October 18 and clearance from the competition watchdog for the company's plan to split, while the stance of the opposition is another risk facing the project.

The conservative opposition has called the network a "giant waste" of taxpayer money, and has promised to review the project if and when it comes to power. Depending on the outcome of such a review, parts of the rollout could be abandoned. 

"What we want to do is get the broadband delivered, but at a lower cost, and that would involve at least in part redesigning the network," conservative telecommunications spokesman Malcolm Turnbull told Australian radio, adding there was no suggestion the opposition would scrap the network.

The next election is not due until 2013 but Gillard's government holds only a single seat majority and relies on the support of a handful of independents, leaving her vulnerable. - Reuters