Opinion split over Telecom break-up

Telecom will become a stand-alone retail business - selling phone, internet and mobile services to customers. Photo / Sarah Ivey

Industry commentators are divided on the level of difficulty Telecom will face splitting its retail and network businesses.

Following its win of the bulk of the Government's ultra-fast broadband contracts, Telecom will now split from its network-arm Chorus in one of biggest corporate shake-ups New Zealand has seen.

Chorus will then be responsible for the roll-out and management of ultra-fast internet network in 24 towns and cities across the country.

It will become a separate public company, with its own corporate structure and listing on the stock exchange.

On the other hand, Telecom will become a stand-alone retail business - selling phone, internet and mobile services to customers.

Shareholders will receive a stake in Chorus equal to their Telecom holdings on separation day and the market will then determine each company's share price.

The way the two companies divide their assets must be approved by both the Government and Telecom shareholders and the de-merger will be monitored by the Commerce Commission.

Telecom has indicated that under the new structure, Chorus will own the copper and the new fibre network while the retail branch will hold on to the mobile network.

However, BT Funds Management's chief investment officer, Paul Richardson, said despite the simple presentation of the Telecom and Chorus split, it will be a complex affair.

"It's not necessarily a clean break at all, it's not correct to say Chorus is just wires, it includes services as well. And vice-versa to the retail side," he said.

"It's not necessary simple. Some bits which are called wholesale or network might go into Chorus, but they might not."

Portfolio manager at Mint Asset Management Shane Solly said he was waiting on more details, but it was unlikely Telecom's separation would be as messy as other big corporate splits, such as for Fletcher Challenge.

"I wouldn't have thought it would be as complicated as Fletcher's; this is something the management team at Telecom have been preparing for some time. Also the businesses within Fletcher's were quite different," Solly said.

Market commentator Arthur Lim said the hard part for Telecom was already over, despite it still needing to work out exactly how the split would take place.

"I think the complication was very much around the deal Telecom ended up striking with the Government, bidding for the [UFB scheme] and winning it," Lim said.

"The key hurdle for Telecom will be to get shareholder approval. But the deal that's been reached and the market reaction to it - which is extremely favourable - it would seem [approval] would be a shoo-in," Lim said.