KEY POINTS:
Telecommunications Minister David Cunliffe has rejected Telecom's plans for separating the telco into three divisions in a standoff over the issue of bonuses to be paid to the head of the wholesale division.
The Government last year ordered Telecom to split its business into wholesale, retail and network divisions.
The independence of the wholesale division - which sells network capacity to Telecom retail and to its competitors - is central to ending longstanding accusations that Telecom has been giving favourable terms to its own divisions.
But it appears to be one of the few areas where Telecom and the Government reformers have been unable to agree as they established the separation plan.
Telecom wants 80 per cent of the incentive bonuses to be based on the performance of the Telecom Group and 20 per cent from the performance of the wholesale division.
The Government originally wanted all of the bonuses to be based on the performance of the division - as had been sought by much of the rest of the industry - but after talks with Telecom it reduced those demands.
It is understood the Government wants a 50:50 split.
As part of the announcement yesterday, Cunliffe is seeking guarantees on the proportion of the pay package that incentives will make up.
"There are a few areas where clarification of the undertakings is still required," Cunliffe said.
"In particular I have asked Telecom to provide the upper limits on group based incentives.
"This is to ensure that wholesale management is encouraged by those incentives to treat all its customers, including Telecom Retail, equally."
But competitors remain concerned that if the head of wholesale makes too much of his or her remuneration package money from the success of the group it will encourage better deals to the Telecom retail division.
Cunliffe and Telecom had depicted the difference as a hiccup near the end of long discussions.
Telecom says the delay is unlikely to stop it meeting the deadline to go back to the Government by March 24.
But industry rivals such as Martin Wylie of CallPlus say that the bonus issue and the relationship between the group and wholesale are at the heart of past competition issues.
A 50:50 deal on bonuses was better than 80:20 was but it was still a compromise, he said.
Telecommunications Users Association chief executive Ernie Newman said Cunliffe had done the right thing in sending Telecom's operational separation proposals back for a rewrite.
"The minister has listened to the organisations that made submissions and has acted on these," he said.
"The changes requested are not huge in scope, but they are critically important."
