Law change shows path for split Telecom

The Government has revealed the path Telecom must take if the company wins broadband contracts and splits itself in two.

Yesterday, Communications Minister Steven Joyce introduced add-ons to a telecommunications bill before a select committee, which explained the legal changes required to separate Telecom's retail business from its network builder, Chorus.

The telco proposed a split from Chorus in its bid for a stake in the Government's ultra-fast broadband scheme.

Telecom is in negotiations to build 85 per cent of the $1.5 billion broadband plan. The split will take place only if Telecom wins the Government contracts and will be subject to shareholder approval.

Joyce stressed introducing the law would have no impact on the tender process.

"[This] doesn't impact on the Government's ability to reach agreements with parties other than Telecom," Joyce said.

It was not appropriate to wait until broadband negotiations were concluded, as the bill before Parliament was the only appropriate law to tack the changes onto, he said.

The law details how Telecom must report on the way it will divide its assets between the two companies and how information and assets could still be shared following the split.

The legislation also reveals any Chorus shares distributed to Telecom shareholders would be untaxed.

It explains how decade-old regulations placed on Telecom would be amended if separation goes ahead.

Under Telecommunications Service Obligations contracts, Telecom is bound to deliver telephone lines and phone services throughout New Zealand, even if it is uneconomical. These contracts need to be altered if Telecom and Chorus separate, as the latter will no longer offer retail products.

Joyce said introducing the changes to law gives Telecom and shareholders time to digest what separation would mean.

"Tabling the [changes] now will also give clarity to Telecom management and shareholders on what a post-separation regulatory environment could look like and keep them informed," he said.

IDC telco analyst Rosie Spragg said this will allow for more public discussion on the impact of the split.

"A lot of the drive to make this public is to address some of the concerns within the industry that there wouldn't be scope to analyse the structure of the separation of Telecom, because the Government will want to move quickly once it's selected its partner, whether its Telecom or not," Spragg said.

However, Telecommunications Users Association head Paul Brislen said the industry was given no warning of the level of changes introduced.

"I don't know if anyone was expecting this level of detail.

The way it had been pitched was it would deal with Telecom structural separation issues and in fact it goes a lot further than that - it fundamentally changes the structure of the telco industry rather than just one part of it.

Submissions on the law are due by Friday, February 25, which Brislen said did not give the industry enough time to digest and respond to the law.

In response to Brislen's concerns, Joyce said that although the changes were well signalled, the submission date could be extended.