KEY POINTS:
Telecom has conceded it cannot convince the Government of the merits of its proposal for operational separation unless it gets backing from the wider industry.
It yesterday said the consultation document released by the Government this month - which gave more detail on its requirements for the company's three-way split - was unworkable, too complex and contained no incentives for the company to invest in its network.
The Government proposed Telecom be split into a wholesale business, a retail unit and a network access unit.
Telecom is now proposing the creation of a separate network access group to own the copper access network. The network group could be sold off or folded into a partnership with industry players or the Government.
Chief financial officer Marko Bogoievski told an analysts' briefing the separation was a politicised process, and Telecom did not have much ability to negotiate on the outcome.
But if Telecom's wholesale customers were in support of Telecom's proposal then it would get a decent hearing from the Government, said Bogoeivski.
"We will have no show getting this proposal up if the industry don't support it," he said.
Internet New Zealand deputy executive director Jordan Carter said Telecom's network proposal did not deliver a future-proof solution because it did not include the electronics that allowed the network to function.
"It is important to note that the proposal from the Government last week does not go beyond the British Telecom model, as asserted by Wayne Boyd. Understanding Telecom's concerns is a key reason for InternetNZ to meet with the company."
Martin Wylie, chief executive of Callplus, said it was a "bold claim" by Telecom that it would get broad industry support for the proposal.
Telecommunications User Association of New Zealand chief executive Ernie Newman welcomed Telecom's proposal, saying it was a "watershed" for the telecommunications industry.
ABN-Amro analyst Ian Martin said it was brave of Telecom to sell off the access network group and leave it open for competitors to purchase.
Bogoievski said the proposed network access group had the potential - if owned by a third party - to create a more simple regulatory framework.
It would free up Telecom's retail model to compete and innovate, he said.
The Government's proposal had pushed the company's forecasted capital costs higher than expected to about $330 million between now and 2010, said Bogoeivski. Capital expenditure would be between $30 million and $75 million for the first year.
The company did not believe that it would be able to invest adequately in fibre networks under the Government proposal because of the costs of separation. "I don't think any of the officials have taken this into account," said Bogoievski.
And the Ministry of Economic Development and the Commerce Commission were not aligned, placing conflicting priorities on Telecom, he said.
"Those things over time need to be tightly managed otherwise we can't prioritise our resources and the industry does not have the certainty to make investment decisions," said Bogoeivski.
Telecom will present a full submission to the Government by April 27. Shares in Telecom closed down 13c at $4.74 yesterday.
Tone change
* Telecom says a Government model on how Telecom should be split three ways is unworkable and has no incentives for future investment.
* The company has proposed that its network access unit be structurally separated.
* It is willing to sell off its copper access network.
