The Department of Communications says the proposal by Eir to roll out the National Broadband Plan for less than a billion euro is not feasible.
The Department has written to the company to confirm the government's position that a state subsidy cannot be given to the firm to complete the programme.
It also states its' proposal would not meet the key objectives of the plan.
Minister Richard Bruton told the cabinet today that significant progress has been made by the Department and the preferred bidder in finalising the legal and financial documents relating to the plan.
He says he expects the contract to be signed later this year.