The Commerce Commission today published its summary and analysis of Telecom Corporation of New Zealand Limited's first regulatory financial statements for the financial year ending 30 June 2009.  

Under requirements issued by the Commission under Part 2B of the Telecommunications Act 2001, Telecom must publish financial and other information about its network, wholesale and retail business activities and services, which is intended to provide useful information to industry stakeholders about the operation and behaviour of Telecom.  

"The requirements for regulatory reporting differ from Telecom's statutory reporting, such as its annual report, as regulatory reporting uses economic and accounting methodologies, which are different from those used for statutory reporting," said Dr  Ross Patterson, Telecommunications Commissioner. "The regulatory financial statements include detailed reports about each of Telecom's different services groups (which generally align with Telecom's Chorus, Telecom Wholesale and Telecom Retail operational business units), prepared as if they were independent and unrelated entities."

"The Commission acknowledges Telecom's work in producing its first regulatory financial statements on both a historical cost and current cost accounting basis, which was a lengthy and complex task. However, the initial regulatory financial statements have raised issues about the methodologies used in the preparation of this information.    The Commission has always regarded the first year of regulatory reporting as a transition year and has highlighted areas where a re-working of the reporting requirements, particularly in relation to the attribution of income and expenses and valuation of Telecom's fixed assets, is likely to be necessary," said Dr Patterson.

The Commission has therefore reviewed Telecom's regulatory financial reporting requirements and is now consulting on proposed changes to those requirements. Following consultation with the industry, the Commission will issue any necessary revisions to the requirements for 2010.

Both the Commission's summary and analysis report for the 2009 financial year and its consultation document on the proposed changes to the requirements are available on the Commission's website under Telecom Accounting Separation.  

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 annual statutory 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.

The regulatory financial statements include reports for each of four Services Groups specified by the Commission which define Telecom's business activities and generally align with Telecom's operationally separated business units:

  • The Access Services Group includes the activities of Chorus.
  • The Wholesale Services Group includes the activities of Telecom Wholesale but excludes international activities.
  • The Retail Services Group includes the activities of Telecom Retail and Gen-I, including all of telecom's mobile assets and services.
  • The Other Services Group includes the activities of the international business group and overseas operations, including AAPT and Southern Cross.

The Commission's regulatory reporting requirements were issued on 25 March 2009 following consultations with Telecom and other interested parties in 2008 and 2009.

Telecom published its regulatory financial statements and regulatory reporting manual on 18 December 2009. These are available on Telecom's website www.telecom.co.nz

Historical Cost Accounting (HCA)  is the conventional accounting method where fixed assets are valued at cost at the time of their purchase and subsequently depreciated. Telecom's Annual Report is prepared applying HCA methodologies to the valuation of fixed assets.

Current Cost Accounting (CCA). Under CCA, certain fixed assets are valued at their replacement cost. Telecom applied a range of techniques to value its fixed assets for its regulatory financial statements; all of which are documented in Telecom's regulatory reporting manual.