Joyce confirms legislation for Telecom split

Provisions for the structural separation of Telecom will be added to the Telecommunications (TSO, Broadband and Other Matters) Amendment Bill later today. [UPDATES: Separation law seen as Telecom win; Tuanz reels as fast-track Telecom separation bill hits]

The bill, introduced before Christmas and still being considered by Parliament, includes law changes necessary for the $300 million rural broadband initiative (RBI) and the $1.25 billion, and urban-focused ultrafast broadband (UFB) project, including new rules about access to private property, and private land.

The initial bill did not hold any provisions for the separation of Telecom into two separate companies, as required to participate in the UFB.

This afternoon, supplementary order paper (SOP) will be added, including the regulatory changes necessary for Telecom to split.

The changes are unlikely to placate Telecom's foes, especially as one central aspect - a review of Telecom's obligations around free local calling under its Telecommunications Services Obligations (TSO) will not take place until after 2013 - well after Crown Fibre negotiations will have wrapped up.

Fait accompli?
While some will see the new ammendments making major Telecom UFB contract wins a fait accompli, Mr Joyce stressed that no decision has yet been made on what role, if any, Telecom will have in the UFB.

“The proposed amendments have been designed to preserve protections for end-users and competitors, reduce unnecessary costs and complexities, and ensure Telecom is neither unduly advantaged nor disadvantaged by de-merging in areas such as tax and land access,” Mr Joyce said.

Two Telecoms
Telecom has said it is willing to split into two, separately listed companies, each with its own chief executive, and each with its own board.

As well as the legislative changes announced today, such a split wiould also require shareholder and debt holder approval. Mr Joyce confirmed that a provision for shareholder approval would be part of the legislation.

Telecom Wholesale is the key
Pundits will be keeping a close eye on where the government sees Telecom Wholesale sitting after a structural split.

Under a model shown to shareholders and analysts, Telecom saw its Wholesale (often seen as the power broker as the company wrangles network access deals with rivals) sitting under a Telecom retail/service company, while Chorus was spun off into a standalone network infrastructure company. How local loop (local exchange) copper assets are divvied up will be another point of contention.

Structural separation would be a step beyond operational separation, which was ordered by the Labour government through ammendmentst to the Telecommunications Act, and came into effect on 31 March 2008. "OpSep" saw the company divided into Chorus (network infrastruture), Telecom Wholesale and Telecom Retail divisions. Chorus and Wholesale must offer the same terms to rivals as they do to competitors, but still come under the same corporate structure.

Tax relief
Telecom is also said to be seeking up to $1 billion in tax relief if separated. The SOP does not seem to provide any ongoing tax benefits, but does specify that no taxes should be levied on Telecom after de-merger that it would not have had pay if it remained whole - a one-off change covering separation day that should help mollify shareholders.

And chief executive Paul Reynolds has made no secret of his campaign to reduce regulation, a theme he again canvassed at Telecom's half-year result last Friday.

Crown Fibre's progress
On December 13, Telecom was named the priority bidder with Crown Fibre Holdings in 25 of 33 UFB regions, including unopposed runs at the two largest, Auckland and Wellington.

The government has already signed a contract with Northpower, which covers one region (Whangarei).

It has signed another with the WEL-led UltraFast Fibre Ltd that covers Hamilton, Cambridge, Te Awamutu, Tauranga, New Plymouth, Wanganui, Hawera and Tokoroa, taking in six Crown Fibre regions.

A third Crown Fibre contract is pending in an eighth region, Timaru.

Earlier this month, Mr Joyce told NBR it would be "weeks rather than months" before announcements were made on the remaining contracts.

Telecom shares (NZX: TEL) were flat at $2.24 in mid-morning trading.