Committee stops short of forcing total split of Telecom

Simon Louisson

Tuesday 28th November 2006

A Parliamentary committee has recommended a three-way operational and accounting split of Telecom -- a more complex division than Telecom believes necessary.

But it stopped short of forcing structural separation that could have wiped hundreds of millions off the value of the telecommunications giant.

A recommendation of structural separation was seen as a worst case scenario for Telecom while its own proposal of simple separation into wholesale and retail divisions was the best case.

Today's recommendation of a full accounting and operational separation into at least three units -- wholesale, retail and network -- was tilted towards the better end of possibilities, according to Forsyth Barr analyst, Jeremy Simpson.

In Britain, BT Group was forced into full structural separation and the committee received advice from some quarters this was the only way to ensure true competition in a market Telecom has dominated through control of its wire network and by sheer weight.

That scenario would have seen substantially more value wiped off Telecom. In May, the Government announced it would force Telecom to open its network to broadband rivals, precipitating a loss of a third of Telecom's value.

The committee has been considering the draft law needed to enforce the Government decision.

"The majority consider it necessary to introduce operational separation regime to promote competition and efficiency for the long-term benefit of end-users," the committee said.

Communications Minister David Cunliffe said he would consider the committee's recommendations.

The Government has put a high priority of opening up the telecommunications market and had hoped to pass legislation before Christmas.

However with Parliament only scheduled to sit for six more days this year, the legislation may either lapse until next year, or be put through under urgency.

Telecom chairman Wayne Boyd complained the form of separation proposed was more complicated and costly than necessary.
"But we will work to implement it as swiftly as reasonably possible," he said.

The committee said the three business units should operate at arms length, with wholesale customers being treated in the same way as Telecom's own business units.

Committee chairman Shane Jones said last week the committee was "very, very aware of the importance of maintaining pro-investment sentiment and pro-investment frameworks".

Boyd said Telecom had already made progress down the path outlined with a major reorganisation, including voluntary separation into retail and wholesale units.

Telecom now has to negotiate with the Crown on detailed undertakings with input also from the industry.

Boyd said the whole industry, including Telecom and its customers, needed certainty about the future of the regime so players could invest.

Telecom's shares were down 4 cents at $4.43 in mid-afternoon. They had been down 5 cents before the committee made its report public.

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