KEY POINTS:
Telecom bosses are to have a tough new watchdog in their midst.
As the $6.87 billion company moves into a new regulated era it now has to fund an Independent Oversight Group to ensure it does not slip into its old anti-competitive ways.
Telecom has been split into
three divisions for networks (handling infrastructure), wholesale (signing deals with competitors), and retail.
The oversight group will keep an eye on how divisions interact and ensure competing telcos get the same deals as Telecom's divisions.
According to the company separation agreement, approved by the Government on "separation day" yesterday, Telecom will have to appoint five members including the chairman, as well as fund and support the new body.
The group will process complaints about compliance, carry out investigations and scrutinise performance and Telecom is obliged to help it.
It will report to the board and the Commerce Commission "as soon as it is reasonable" after it becomes aware of any "non-trivial" breach of undertakings and conduct an annual review.
The oversight group and Telecom will have to sign a deal to share valuable commercial information.
Telecom spokesman Mark Watts said the company was advanced in negotiations to appoint the group's members. He could not say when the body would be appointed but said he would reveal names as soon as possible. A majority of the five members have to be independent from Telecom.
But even critics of Telecom - and the anti-competitive way it used its vertically integrated business units in the past - acknowledge it will not be easy appointing the group.
"Where do you find independent people who understand the telecommunications business?" asked Martin Wylie of telco CallPlus.
Wylie still questions the approach of Telecom in dealing with competitors - especially with the new cabinetisation programme.
But he welcomed the terms of the agreement, which matched those overseas.
Tom Chignall, general manager of commercial development at Vodafone, which owns ihug and has plans to move into the fixed line phone business, also welcomed the deal.
"We're happy to see the situation resolved on time so we can move forward with certainty and focus on delivering innovative products to our customers," Chignall said.
Steve Simms, president of the Wireless and Broadband Forum said even before regulation his members were finding that Telecom divisions were now more approachable and accommodating.
The appointment of the oversight group would be good for customers and clients, but the Telecom approach was also common sense.
"Having a group like this is one way to avoid anti-trust lawsuits," he said.
Since privatisation it has been possible to secure strong returns in a climate where it faced only limited regulation and lobbied politicians that regulation would harm New Zealand's biggest company because it would damage the stock market. Although Telecom's share price is wallowing at $3.80 and was down 9c yesterday on news of the separation agreement, the sharemarket has survived the upheavals.
Communications and Telecommunications Minister David Cunliffe said the separation plan would speed up Telecom's roll-out of a new-generation fibre optic network.
Under the agreement Telecom had committed to rolling out the network to the bulk of New Zealand by 2012, with penalties if it failed to comply.
That would mean speeds of at least 10 megabits per second for 80 per cent of New Zealand.
He said recent advances meant Telecom expected to surpass the terms of the agreement and provide 10 megabits per second speed for 84 per cent of users and 5 megabits for 89 per cent by the target date.
"So that will penetrate right into rural New Zealand."
Telecom chief executive Paul Reynolds said: "The milestones attached to the undertakings are challenging but achievable."
Meanwhile Telecom, has bowed to another change demanded by Cunliffe over the pay packet for the head of its wholesale division, Matt Crockett.
Telecom had insisted 80 per cent of Crockett's bonuses came from the performance of the wider Telecom group - including retail - and 20 per cent from the performance of his division.
Under the agreement less than 50 per cent of Crockett's bonuses can come from the performance of the group.
The industry, bruised by years of Telecom dominance, sees Cunliffe's demands for change as an encouraging sign the market has changed.
