Telecom Corp of New Zealand Ltd should form three units instead of its current two, a parliamentary committee said on November 28 in a report that stopped short of investors' worst-case scenario of a split-up of the company.
The committee has been considering a draft government law that will force Telecom, New Zealand's largest listed company, to open up its local phone networks to competitors to hasten the introduction of faster and cheaper Internet services.
There had been speculation the law would force Telecom to split its wholesale arm into a separate company, similar to the case of Britain's BT Group Plc. The government has said it was keeping that measure in reserve. "The majority consider it necessary to introduce operational separation regime to promote competition and efficiency for the long-term benefit of end-users," the committee said.
Telecom's shares dipped after the news, and were trading down 0.5 percent or 2 cents at NZ$4.45. The shares have struggled amid uncertainty over the company's future since the government said in May it planned a package of reforms based around so-called local loop unbundling. The committee's recommendations will be presented to parliament. It is up to the government whether it will accept and incorporate the recommendations into the legislation, which is expected to be passed next year.
The government is widely expected to adopt the proposals. Telecom said it could live with the committee's proposals.
"This form of separation is more complicated and costly than we believe is necessary for New Zealand but we will work to implement it as swiftly as reasonably possible," Chairman Wayne Boyd said in a statement.
The committee suggested that Telecom form a business unit to manage its fixed line phone network, one to provide wholesale services to competitors, and one or more to provide Telecom's retail services. It said the business units should operate at arms length, with wholesale customers being treated in the same way as Telecom's own business units.
If the committee had recommended splitting Telecom into separate companies, one analyst had estimated it could have lost up to half of its NZ$8.7 billion ($5.8 billion) market value.
Last week the chairman of the committee, Shane Jones, told Reuters that he did not think there was likely to be much in the report that would overly concern Telecom shareholders.
"The committee is very, very aware of the importance of maintaining pro-investment sentiment and pro-investment frameworks," he said.
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