Telecom needs broadband terms 'within weeks'

Paul Reynolds. Photo / Paul Estcourt

Telecom says it needs to conclude terms with the Government in the next few weeks if it is to be its partner in an ultra-fast broadband network.

It would require the structural separation of Telecom into two distinct companies, one providing the fibre network on an open-access basis, the other retailing telecommunications services in competition with other providers.

"We have a self-imposed deadline of demerger by the middle of next year," chief executive Paul Reynolds said yesterday. "We assume that this is a project within the term of this Parliament."

Demerger of a company of Telecom's size and complexity, even having implemented operational separation, would take more than six months.

"So to arrive at our destination by the middle of next year we need a heads of agreement in the next few weeks," he said.

Of the moving parts in the commercial calculation Telecom has to make, some fall within the scope of its negotiations with Crown Fibre Holdings and also apply to other bidders, like pricing, build costs and the timeframe for rolling out the network.

Others are Telecom-specific, notably regulatory changes it requires (necessitating parallel discussions with the Ministry of Economic Development) and the costs of demerger.

"It has to add up to something that looks favourable to shareholders because clearly demerger requires a vote. We have to put a business case to them that works for them."

There was nothing sinister about the Government talking of the need for "regulatory forbearance on pricing" for a period of 10 years, Reynolds said.

Pricing would be agreed up front in the contract with the Government and investors needed certainty that it would not be undermined by the Commerce Commission - especially given the "very difficult economics" of rolling out fibre to 75 per cent of homes within 10 years.

He said the question of whether the costs of structural separation were worth it could not be boiled down to how much of the country it would get. It would depend on whether the terms of the deal added up to something net positive for shareholders. But it would have to include Auckland, he added.

Mark Ratcliffe, chief executive of Telecom's network arm, Chorus, said the regulatory changes sought did not relate to the terms on which its wholesale customers buy services from it.

Existing legislation reflected a time when Telecom was dominant, he said. "If you move to a future where all the investment is in front of you, having regulation that is entirely built around historic investment doesn't seem appropriate."