The Telecommunications Users Association says an American proposal to force undersea cable operators to pay a levy will force up internet prices and jeopardise plans for a second trans-Pacific cable.
The Federal Communications Commission in the United States is proposing to eliminate an exemption for operators of international submarine cables landing in the US.
It means operators like Southern Cross Cable Network, which connects Australia and New Zealand to the US, would pay a levy of nearly 16% of their quarterly revenue to subsidise America's broadband network to rural users.
Pacific Fibre aims to have the second cable to the US up and running by the middle of 2014.
TUANZ chief executive Paul Brislen says the proposal would curb the uptake of ultrafast broadband.
"We're talking about a deadening effect on any future cables between here and the US."
Mr Brislen says it is a protectionist move by the US government to maintain its lead in the digital economy.
Pacific Fibre did not return calls.