SANTA CLARA, Calif. — Alex Smith on Tuesday signed a new significantly scaled-back contract with the 49ers, setting the stage for a quarterback battle between him and good buddy Shaun Hill.

Hill, who led the 49ers to a 5-3 record in the second half of the 2008 season, was in Smith's wedding Feb. 21. In a week and a half, the two begin another offseason competition when the 49ers hold their first minicamp March 20-22.

"I'm glad it's against Shaun," Smith said during a teleconference. "He's a great guy. I can't think of a better guy to compete against. I'm excited about that — excited that with me and him it'll all be on the table, and I don't have to worry about anything behind closed doors because we are so close."

Hill and Smith also began the 2008 offseason in a two-man competition. By the end of training camp, however, J.T. O'Sullivan emerged as the regular-season starter. Smith would have entered the season as the No. 2 quarterback, but he broke his shoulder just before the Sept. 7 opener.

Smith had surgery in late October to remove the nettlesome piece of bone, and he said Tuesday the joint felt better than at any point in 2008. Smith said he's been throwing 50 to 80 passes a week with trainers. He said his arm wasn't 100 percent, but he felt he could fully participate in the upcoming minicamp.

"I've been here working since the season ended, and I feel really, really good with it excited to finally be healthy and getting out on the field and competing and not have to worry about it," he said.

Smith, who feuded with former coach Mike Nolan in 2007, said it felt as if he was receiving a fresh start with the 49ers. Smith said new coach Mike Singletary has brought a new attitude to the team. The 2009 offense, meanwhile, is similar to the one Smith ran in 2006 under offensive coordinator Norv Turner.

"The coaches have kind of been on the ball here it seems like, and (they've) really gotten the playbook together in a timely manner and gotten it out to us," Smith said. "There are definitely similarities to the systems we've had in the past, especially with the terminology."

Smith, the No. 1 pick in the 2005 draft, was scheduled to earn nearly $10 million in base salary this season. Reducing that number was crucial for his return to San Francisco. Terms were not released, but it's a two-year deal believed to be between $2 million and $3 million a season.

Asked whether it was difficult to accept a pay cut, Smith said, "Absolutely not."

"You know, I'm tired of watching. I'm tired of being in that training room, and I'm ready to get back out there," he said. "I'm thankful I got the chance, so when it came time to restructure the contract, it wasn't anything that had to do with ego or how much money I'd be making. I just wanted the chance to compete."