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Telecom fesses up to structural separation - Updated

24 May 2010

[Minister Joyce responds] Telecom has released a statement confirming it is fully investigating structural separation – that is, the possible sale of Chorus.

“Telecom’s strong preference is to align the interests of its equity and debt holders with those of the Government and New Zealanders,” says Telecom CEO Paul Reynolds. “The Government’s UFB initiative will fundamentally reshape the structure of the entire telecommunications industry in New Zealand and Telecom is therefore undertaking a thorough assessment of the merits of structural separation.

“In making a thorough assessment of structural separation we need to have a detailed understanding of the regulatory environment, and this warrants detailed discussion and analysis with Government before any decisions regarding its viability can be made.”

In order to participate in the UFB a company that has a majority share in the layer one infrastructure (ducts and cables) can’t provide retail services on that network. This rule - which the Government has adhered to staunchly - is to avoid what’s occurred in the copper world, where Telecom owns the infrastructure and provides ubiquitous retail services.

Telecom has asked ICT Minister Steven Joyce to consider variations on three aspects of its operational separation undertakings related to its ownership of the copper network.

“These three amendments will not impact on the service levels experienced by our end user and industry customers, and will not detract from the EOI level playing field.  Rather, they reflect how fastthe policy and technology environment is evolving in telecommunications,” says Reynolds.

“In these three areas Telecom, industry participants and New Zealand consumers face significant costs and risks of disruption that were not foreseeable at the time the commitments weremade.  They also lock Telecom, the industry and the Government into some choices which should be considered as part of the UFB initiative and thepotential structural separation of Telecom.”

The proposed changes are to:

·

  • Suspend the forced bulk migration of existingbroadband customers onto a new copper-based broadband service.  We will,however, continue to supply this new broadband service to all new customers;·
  • Remove the requirement for Telecom to migrate17,000 customers onto a new VoIP over copper service by the end of this year;and·
  • Remove the requirement for Telecom to build a new set of wholesalesystems that are not consistent with the industry structure implied by UFB.
Update

ICTMinister Steven Joyce has released a statement this afternoon respondingpositively to Telecom’s announcement that it is investigating structuralseparation. “A potential structural separation of Telecom would involve anumber of complex regulatory issues to work through. I am encouraging Telecomto work with Crown Fibre Holdings and the Ministry of Economic Development.”

He saysTelecom is not the only industry partner to have raised regulatory issues inrelation to its bid. “There have been a number of positive recent developmentsfrom potential partners as momentum builds in the ultra-fast broadbandinitiative. Clearly potential partners are working hard to put their best footforward.”

Joyceacknowledges Telecom request for the government to consider a further variationto the company’s Operational Separation Undertakings. “Mr Joyce says he is consciousof the importance of certainty around issues raised and will expedite Telecom’srequest through the usual process with an open mind,” the statement reads.

See: FIBRE 2010: Did David Skilling seal Chorus's fate in 2008?and Telecom's road to separation