Telecom looks set to put years of regulatory uncertainty behind it after shareholders voted overwhelmingly in favour today of splitting New Zealand's biggest listed company into two separate businesses.
Subject to final court orders, Telecom will "demerge'' its fixed line access infrastructure business, Chorus, to enable Chorus to take a leading role in the government's ultra-fast broadband (UFB) initiative, effective from November 30, by which time the company is expected to be a separately listed entity.
The vote in favour of the split was just 0.2 percent short of unanimous.
Telecom chief executive Paul Reynolds said the company had been subjected to more regulation that had been "more intensive, prescriptive and more detailed'' than in any other country or market in the world.
"We have had three revised industry structures in the last five years, with far-reaching consequences for Telecom and you as shareholders, in terms of the mandated requirement to invest substantially beyond what we would do through commercial logic,'' he said.
Regulation had acted to divert management time away from competition and towards compliance, he said.
Throughout the period of government-imposed operational separation from 2008-10, Telecom's rate of capital investment was nearly double that of comparable telcos overseas, he said.
"The influence of regulation on our company has been a key part of our story over the years, and in many ways has brought us to the decision that shareholders face today,'' he said.
Reynolds will stay on as chief executive during the separation process but the company expects his replacement be on board by the start of the new financial year.
Chairman Wayne Boyd said the 2010/11 year to June had been "pivotal'' - marked by Chorus' success in winning the lion's share of the UFB initiative.
Chorus has been operating at arm's length from other parts of Telecom since 2008, providing access to Chorus' infrastructure to all industry participants on an entirely equal footing.
"Reaching agreement with the Government on these matters has been no simple task,'' Boyd said.
"It was extremely challenging to find a way in which Telecom could participate in these Government initiatives at the same time as acting in our shareholders' best interests,'' Boyd told shareholders.
One of the most significant challenges to overcome was the Government's requirement that no company selected through the tender process could both own infrastructure and sell services to residential and business customers directly, as Telecom does today.
"So Telecom had a choice - do we separate Chorus into an entirely stand-alone business to allow it to participate in the Government's initiative? And if so, how do we make this stack up for our shareholders.''
Boyd, who has been chairman since 2006, stepped down from the role today. He will be replaced by Mark Verbiest.
The Chorus board will be chaired by Sue Sheldon, who will step down from her role on the Telecom board.
Regulatory uncertainty and competitive pressures have weighed heavily on Telecom's share price in recent years, but Boyd said when taking into account both the increase in share price and the dividends paid, Telecom has outperformed the NZX50 by more than 30 per cent over the last 12 months.
Telecom shares last traded at $2.53, down 3c.
