KEY POINTS:
Telecommunications Minister David Cunliffe is standing by the Government's stance on Telecom's plan to split into network, retail and wholesale divisions.
As the deadline looms for Telecom to present its separation plan, the Government has sent it back to the drawing board to change the bonus scheme paid to the head of wholesale.
But competitors fear the Government will compromise again and allow the bonus to encourage better deals for Telecom retail.
Rivals claiming they got worse treatment than in-house business were at the centre of the bitter row that led to the government-ordered split.
Cunliffe this week dismissed a suggestion that the compromises already made in talks with Telecom have undermined benefits from local loop unbundling.
He said critics were underestimating changes to access requirements that protected customers from Telecom giving its own operations favourable deals.
And the minister is confident of clearing up the last remaining issues - mainly the wholesale bonus - when Telecom comes back with its amended separation plan in time for the March 24 deadline.
Competitors - such as CallPlus chief executive Martin Wylie - have warned Cunliffe against compromising more on the bonus issue.
The issue holding up a historic regulatory regime, a bonus payment to a single executive, appears to be prosaic.
But Telecom's rivals say it goes to the heart of the need for separation.
Last year, the Government had wanted Telecom to ensure that all of the bonus paid to the head of the wholesale division be based on the performance of the wholesale division.
But, under pressure from Telecom, the Government pulled back on those demands. "The Government came to the conclusion that the model for the separation we had used - BT in the UK - was not wholly similar to the Telecom situation," Cunliffe said.
Telecom CEO Paul Reynolds was a firm advocate of that position since he held the head of wholesale at BT and took all of his bonus from the performance of the group.
Telecom has stood firm demanding a split of 80 per cent of the bonus for wholesale coming from the group and 20 per cent from the division.
Competitors say Telecom will only set bonuses that way to ensure the division gives favourable treatment to its retail division.
Telecom declined to discuss its reasons for that approach but it has claimed that the deal focused on the wholesale bonus is important to ensure the smooth operation of the company at a corporate level.
The Government sent back the 80/20 rethink and is looking for incentives to be split 50/50.
Cunliffe insists there is logic behind the numbers and that the separation plan will ensure competitors have equal access, including back-up powers for competitors to access the Commerce Commission.
"I am comfortable we have very sound set undertakings and I would argue they are the best in the world."
COUNTING DOWN
* From March 31, Telecom will be split into network, wholesale and retail divisions.
* The Government has been negotiating with Telecom on its separation plan.
* It has told Telecom to change its bonus plan for the chief executive of the wholesale division.
* Telecom has until March 24 to make the changes.
