Standard & Poor's has maintained its 'A' long-term and 'A-1' short-term ratings on Telecom on credit watch with negative implications (originally placed on August 4 2010)
"In our view, significant regulatory-driven uncertainties remain surrounding Telecom's future earnings and asset composition," Standard & Poor's credit analyst Paul Draffin said.
"If Telecom agrees to demerge its fixed-line access network and part of its wholesale division into a new standalone company, it will likely result in a lowering of the long-term rating by one or two notches."
The agency said the final rating outcome will however depend on a number of key issues, including:
Mr Draffin added: "If Telecom does not structurally separate its access network business, it should be adequately positioned at the ‘A’ rating to compete with the ultra fast broadband (UFB) network and retain a strong market position in fixed-line networks in the medium term.
"However, retention of the ‘A’ rating would be reliant on a number of key factors, including Telecom successfully executing an effective strategy to compete with any future UFB network, and maintaining a modest financial risk profile."
Telecom shares (NZX: TEL) fell 0.5% today to $1.98