He will lead Telecom through the process of the demerger with Chorus in November, but the company said it would begin looking for a replacement Reynolds in 2012, with the view that a new chief executive would lead the company from the 2012/13 financial year.
Telecom proposed the breakup as part of its bid for Government broadband contracts, which it won the bulk of in May.
Under the deal, its network-arm Chorus must become a separate public company and will receive $929 million of Government funding to roll out a fibre network to much of the country.
Market commentators have labelled the split as one of New Zealand's biggest corporate shake-ups since the 1990s.
Reynolds said today he was excited by the challenge of leading the company through a new industry structure, but after five years in the role it was a good time to "hand over to a new CEO".
"Meantime, I'm determined to ensure that New Zealand, Telecom's customers, our people and our shareholders benefit from the demerger and UFB.
Reynolds said while he'd not yet made plans for his career post-Telecom, he wanted to maintain strong ties with New Zealand.
Telecom, the country's second biggest listed company, revealed a strong bill of health earlier this month, despite its profits plummeting by more than 50%.
"We've grown the business, we've won the bulk of Government (ultra-fast broadband contracts) ... our customer satisfaction is up - so it feels like a very solid performance across the piece," Reynolds said.
Telecom's chairman Wayne Boyd also confirmed his intention to step down from his role assuming shareholders agreed to the demerger of Telecom.
Subject to the necessary approvals, the demerger is expected to be completed by the end of November.
Meanwhile, Telecom will issue a scheme booklet to shareholders with more information about the demerger, in September.
