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CommComm: Telecom’s regulatory financial reporting

Media Release - Commerce Commission’s view of Telecom’s regulatory financial reporting

Telecom New Zealand Limited today released its first set of audited regulatory financial statements for the financial year ending 30 June 2009.

Under the Telecommunications Act Telecom must publish financial and other information about its retail, wholesale and network business activities. The regulatory financial statements are intended to provide useful information to industry stakeholders about the operation and behaviour of Telecom under operational separation.

“Telecom has worked hard to meet the tight timeframes in implementing regulatory accounting,” said Dr Ross Patterson, Telecommunications Commissioner. “However, it has been difficult for Telecom to provide information to the Commission in sufficient time for the Commission to complete its planned review work in relation to whether Telecom’s assets have been properly allocated into the relevant operationally separated unit.”

“For the same reason the Commission has not been able to review the appropriateness of the asset revaluation used in the 2009 current cost regulatory financial statements. Consequently material changes may occur to the valuation and allocation of Telecom’s fixed assets between the 2009 and 2010 regulatory financial statements,” said Dr Patterson. As a result, the Commission’s preliminary view is that limited reliance should be placed on these 2009 regulatory financial statements.”

“The audit report on the 2009 regulatory financial statements is limited to a view on whether Telecom has produced its regulatory financial statements in accordance with Telecom’s Regulatory Manuals,” said Dr Patterson. “The Commission’s review is focused on assessing whether, in its regulatory financial statements, Telecom’s revaluation of its assets and allocation of its income and costs into each of its retail, wholesale or network units is reasonable under generally accepted accounting principles.”

Early in 2010 the Commission will publish a full summary and analysis report of the 2009 regulatory financial statements, and will consult on any amendments to the 2010 Requirements.

Background

The December 2006 amendments to the Telecommunications Act 2001 (the Act) introduced new information disclosure requirements which include the accounting separation of Telecom. These regulatory reporting requirements are different from, and in addition to, Telecom’s statutory financial reporting requirements.

Under Part 2B of the Act, the Commission must require Telecom (as defined by section 5 of the Act) to prepare and disclose information about the operation and behaviour of its network, wholesale and retail activities as if they were operated as independent or unrelated companies. The Act gives the Commission discretion to determine what information Telecom must provide, including the methodologies to be used in preparing the information. The information to be disclosed may include, among other things, cost information, asset valuations, and non-financial performance measures.

In reaching its decision, the Commission has considered both the purpose and reasonableness of the information disclosure requirements and ensured they are consistent with the operational separation undertakings.

The Commission consulted on both the requirements and the principles relating to these information disclosure requirements in 2008. The regulatory requirements were issued on 25 March 2009.

ENDS

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