Telecom, Chorus to share some assets after split (but not goodwill)

Telecom and Chorus will share a range of assets following their separation into standalone entities, according to its asset allocation plan published today.

Telecom and Chorus will share a range of assets following their separation into standalone entities, according to its asset allocation plan published today.

While there will be no joint ownership, certain assets will be used by both companies, including key infrastructure such as fibre-optic cables, network routers, power systems, land, building and furniture.

New Chorus has been allocated the passive copper network; local access fibre and electronics; and business and operating support systems for wholesale customers, while New Telecom will own VoIP hardware and software; the mobile network; overseas assets including AAPT and the 50 percent stake in the Southern Cross Cable; and its sales and distribution channels, among others.

All in all, the document details how 270,000 individual fixed assets will be split. "Goodwill" falls under the New Telecom column.

The arrangements are now subject to final approvals, including approval by the Minister for Communications and Information Technology, Steven Joyce.

Chorus chief executive Mark Ratcliffe says the plan follows extensive industry consultation.

"Sharing of some assets, under robust arm's length agreements, is a pragmatic and sensible solution that ensures the industry continues to receive reliable services and avoids unnecessary duplication and waste," he says.

"These agreements enable the timely establishment of New Chorus as a stand-alone business, and maximise the significant investment already undertaken in system separation through operational separation, rather than everyone in the industry rebuilding entirely new systems for legacy products and services."

Last week Chorus also published a Wholesale Services Agreement (WSA) for consultation, which provided additional detail on the features and pricing of New Chorus' proposed fibre products.

Telecom says its objective when undertaking the split of its assets is to create two sustainable companies, along with meeting the requirements of the Telecommunications Act.

Subject to shareholder and bondholder approval, Chorus will become a separate business known as "New Chorus" via a demerger to enable it to take part in the ultra-fast broadband scheme. New Telecom will provide fixed line, mobile and ICT products and services and will no longer own the local access network. Instead, it will deliver services to users on the New Chorus network like other providers.

"Telecom will be the first comparable telco in the world to undergo structural separation, and unpicking such a complex business is a massive undertaking," says Paul Reynolds, Telecom chief executive.

"We believe we are now well positioned to deliver a stand-alone New Chorus business in a timely and effective manner, while also ensuring there is no disruption to services or unnecessary cost created for the industry."

New Chorus has already been established as a subsidiary of Telecom. Assets and liabilities will now need to be transferred to it, and shared systems separated. The final step involves structurally separating the two companies by distributing Telecom‘s shares in New Chorus to Telecom‘s shareholders, so that Telecom itself no longer holds any shares in New Chorus.

Also released today by Telecom and the Ministry of Economic Development were deeds of undertaking for open access.

These will replace Telecom's undertakings on operation separation on the day of the demerger and are designed to ensure non-discrimination.

"As structural separation marks a fundamental shift to the industry structure, the principles of a level playing field and non-discrimination and equivalence will shift to the newly-demerged Chorus business," Ratcliffe says.

The MED is seeking written submissions on the deeds by August 12.