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Telecom - New Zealand's incumbent telco - is to blow US$220m on a new digital phone network.

The first residential phone users are due to be migrated to New Zealand's next generation network by early 2007 with all 2.2m punters shunted across by 2012, the company announced today.

By replacing Telecom's existing traditional phone infrastructure with an IP network, the company claims it has the potential to reduce costs for customers.

The work is part of a broader US$1.4bn project to build a new network capable of giving users access to voice, data and video services.

Announcing Telecom's decision to team up with Alcatel for the project, the telco's COO Simon Moutter said: "This is really fundamental for the future of telecommunications in New Zealand. IP Voice technology is critical to achieving the goal of integrated and converged services."

In June, New Zealand's telecoms network was crippled leaving thousands of punters without phone or internet access. Rats were blamed for severing a fibre on a bridge in the Rimutaka area on New Zealand's North Island.

While the telco could cope with that incident it was unable to keep services running after a contractor severed another cable shortly after while drilling a post hole. ®

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