The Federal Government has struck an $11 billion deal with Telstra over the national broadband network.

Prime Minister Kevin Rudd announced the deal at a joint press conference with Telstra chief David Thodey.

The Government will pay $9 billion to access Telstra infrastructure - including pits and ducts - to avoid duplication.

A further $2 billion will go towards dealing with structural separation issues, including setting up a new company, USO Co, to meet Telstra's universal service obligation for the delivery of standard telephone services, payphones and emergency call handling from July 1, 2012.

The Government will also provide $100 million to Telstra to assist in the retraining and redeployment of staff affected by the changes.

It will also pay compensation to Telstra to phase out its copper network and cable broadband internet service.

Instead, Telstra is likely to become the NBN's largest customer by transferring its customers onto the new fibre optic infrastructure.

NBN Co will become the wholesale supplier of last resort for fibre connections in greenfield developments from January 1, 2011.

The deal still needs the approval of Telstra shareholders and the competition regulator.

Mr Rudd says the agreement with Telstra will help the Government provide a new super fast internet system.

"This has been a very difficult, tough, hard negotiation; but it has also been an honest set of negotiations," he said.

"It demonstrates what can be yielded through a process of negotiation where the end point is to deliver better services for all Australians and a better outcome for our nation's economy."

Communications Minister Stephen Conroy described talks between the Government and Telstra as "tough negotiations".

"Today's agreement between Telstra and NBN is significant it will be remembered as the moment the Australian Government and the industry joined together to revolutionise the telecommunications sector in this country," he said.

"The agreement means that NBN can be rolled out quicker, cheaper, more efficiently and with faster take up rates," he said.

Telstra chairwoman Catherine Livingstone says there is still a significant amount of work to do before final aspects of the deal are sorted out.

"The agreement certainly takes us a step closer to achieving that mutually beneficial outcome which, as you know, has always been Telstra's objective," she said.

"That outcome will be in the best interests of Telstra shareholders.

"We're very encouraged by the heads of agreement, but there is a great deal of work to do to achieve the definitive agreements."

The Government has been in negotiations with the telecommunications company since late last year.

- ABC/AAP