KEY POINTS:
Telecom chairman Wayne Boyd used the company's third-quarter results announcement yesterday to attack the Government's telecommunications strategy, saying the company would not invest in a next generation network.
He also refused to rule out breaking up and selling off the company should regulation not go its way.
"We're quite staunch about this - their proposal won't work," Boyd said at the results briefing in Sydney.
"Further investment in broadband must however be contingent upon being able to ... earn a fair rate of return on that investment."
At the core of the dispute is the disagreement between the Government and Telecom about the best way to achieve the Government's objective of faster and cheaper broadband access for New Zealanders.
The Government wants Telecom to be split into three operating units - retail, wholesale and network - to allow competitors equal access to its network and services.
Telecom says this would be unnecessarily complex and expensive and instead advocates a two-way split which would see the retail and wholesale units operating separately under the Telecom banner, but the network assets in a separate company.
Boyd's comments might bring to mind Telecom's blocking tactics of old - where the company was accused of obfuscating and delaying any market reform - but outgoing chief executive Theresa Gattung denied this.
She said Telecom had accepted the need for a regulatory regime and level playing field. "We're basically trying to actually leap forward in time because we believe that if we stay on the path we're on there is going to be a train wreck coming," she said.
Boyd said the $1 billion investment gap needed to deliver the Government's digital strategy had to be central to discussions regarding splitting Telecom into three businesses.
The digital strategy aims to have broadband speeds of 5Mbps delivered to 90 per cent of New Zealanders by 2010.
The company calculated it would need $1.5 billion to deliver that objective but could make available only one-third of that amount, because the Government's plan for operational separation did not give the return needed to justify large-scale investment in the broadband network.
"Now is not the time to validate a process that steadfastly refuses to acknowledge the issue of investment," said Boyd.
Brook Asset Management's Simon Botherway asked whether it was time to break up Telecom and auction it off in bits.
Boyd said the company would need to see how "meaningful discussions" with the Government "play out".
"But you're perfectly right - any responsible board would consider the future quite carefully in terms of the group of assets that are under its stewardship if the worst setting actually eventuated." Boyd said the board had so far not had any discussions around breaking up the company.
Chief financial officer Marko Bogoievski took a dig at Australian rival Telstra. He said there was a "stark contrast" between Telecom's approach to regulation with its "quite innovative" proposal around structural separation and Telstra's position in the Australian market.
Telstra last year cancelled plans to spend A$4 billion on a high-speed, fibre-optic network after negotiations broke down with the Australian government regulator.
"I suppose it's understandable why you have organisations like TelstraClear in New Zealand arguing for promotion of an operational separation plan that would keep Telecom mired in some detail for a long period of time, (a) because it's in their interests and (b) because they wouldn't want to see our proposed model migrate across into this market."
Telecom shares closed unchanged at $4.87 yesterday.
Split opinion
The Government plan
* Telecom will be split into wholesale, retail and network access units.
* The network access group should have its own brand and head office.
The Telecom plan
* Retail and wholesale operation units within Telecom with light regulatory management.
* A structural separate network company that may be sold.
