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Telecom New Zealand May Hold Vote on Demerger Plan by Mid-2011

Telecom Corp., New Zealand’s largest telephone company, will be able to hold a shareholder vote on a possible demerger by the middle of next year if it’s selected as a partner in a national broadband plan.

“With a fair wind and willing parties, the heads of agreement, shareholder vote and legislative change that supports it could be done by that time,” Chief Executive Officer Paul Reynolds said on a conference call today to discuss the company’s earnings.

The government is planning a NZ$1.5 billion ($1.1 billion) nationwide fiber-optic network and is weighing bids from potential partners. Vodafone Group Plc and New Zealand’s electricity distributor, Vector Ltd., are among companies in 15 groups that have submitted proposals to take part.

“There’s a fantastic prize to be won here,” he said. “In order to grasp this prize you need to bring together two really energetic, willing parties.”

Telecom said today fourth-quarter profit declined 40 percent because of lower prices, higher costs and slowing domestic demand.

The shares fell for the first time in a week, declining 3.3 percent to close at NZ$2.03 in Wellington trading.

The government has ruled that companies that want to join the ultrafast broadband plan shouldn’t also offer retail services. Telecom this month said it would distribute stock in its network company Chorus to existing shareholders, creating a business that meets the requirement. A decision on the government’s partner is expected in October.

Proposal Submitted

As much as NZ$500 million a year of capital now invested in existing copper-wire lines may be diverted to the new network, Reynolds said. He declined to give details on potential earnings from the new networks.

Standard & Poor’s earlier this month placed Telecom’s A credit rating on watch for a possible downgrade after the demerger plans were announced.

Should Telecom lose its single-A status it would trigger a $194 million collateral payment to cover positions in derivatives markets, Chief Financial Officer Russ Houlden said today on the call.

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