The issue was resolved about 8am, Telecom said in a statement, however customers may experience trouble browsing or using the internet due to the volume of customer modems trying to reconnect.
"We apologise for the inconvenience caused by this outage, which occurred when a problem arose during a scheduled software upgrade on one of our main internet servers."
Earlier, Telecom spokesperson Andrew Pirie said broadband was cut to about two-thirds of the company's 400,000 broadband customers after an outage overnight.
Pirie said there was also an unknown number of Eftpos New Zealand customers affected by the outage, he said.
It is the second major failure in Telecom's broadband network in two weeks.
Around 25,000 mainly residential customers lost service lost their connections on November 30, after a fibreoptic cable failed after system upgrade work."Almost immediately we noticed there was an issue with the broadband. It took three hours to restore, but during that time customers were affected across the country." a spokeswoman said at the time.
Telecom apologised for the inconvenience - but ruled out compensation for customers who lost productivity due to the outage.
"The broadband and the mobile network, there's no guarantees around that service - that's in the terms and conditions that people sign up to at the front.
"In this instance it was resolved relatively quickly, and the fact [is] that it happened relatively early in the morning, when not many people would have been using their internet," said the spokeswoman.