New Zealand's biggest telecommunications companies have revealed that spying reforms will allow them to volunteer suspicious information about their customers to spying agencies.

Vodafone and Spark say they are not comfortable with the proposal, and they want Parliament to reconsider it.

The Government is updating intelligence and security legislation following a wide-ranging review by Sir Michael Cullen and Dame Patsy Reddy.

Vodafone New Zealand is concerned about a clause which says any "agency" may disclose information that it holds or controls to spying agencies "if it is satisfied that the information is required by the intelligence and security agency to perform or exercise a function, duty or power".

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Appearing before a select committee this morning, Vodafone head of public policy and government relations Chris Abbott said his company would qualify as an "agency" under the legislation.

The new provision was neither practical nor appropriate, he said.

"We believe it is not for Vodafone to judge or satisfy itself that information is required for a security agent to perform a function.

"Even if we were comfortable doing so, we would lack the necessary factual basis to make a judgement about whether disclosure of that information is appropriate or not."

The company was "simply not equipped" to make such judgements, he said, and doing so would violate the trust of its customers.

Abbott said Vodafone regularly responded to requests for information from agencies, but these related to specific requests or warrants and did not require any discretion from the company.

Vodafone lead counsel Tom Thurby said he did not expect any New Zealand business to proactively volunteer information if the law change went ahead.

"Our position would be that we will respond to warrants, we will respond to compulsion. We will not co-operate on a voluntary basis under this clause."

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Labour's foreign affairs spokesman David Shearer said it was a "critical" issue which had also been raised with him by another telecommunications company, Spark.

A Spark spokesman confirmed the company was concerned about the clause and would opposed it in its written submission.

The onus should be on agencies, not the private sector, to decide if an information request is appropriate, he said.

Labour MP David Parker said the new provision evoked the police investigation of journalist and Dirty Politics author Nicky Hager.

In that case, the police obtained 10 months of Hager's personal banking records from Westpac without a legal order as part of a search which was later ruled illegal in the High Court.

Parker questioned whether the new provision would "effectively be saying to Westpac 'You are justified in providing this information about Nicky Hager's bank records to an agency'."

Thurby said the Westpac case showed that any exercise of discretion by companies in providing information to authorities was "fraught".