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Telecom NZ fibs to govt over network assets

Inflates value by over NZ$1b

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The New Zealand government’s Commerce Commission has rejected Telecom New Zealand’s annual financial statements for the year to June 2010, dismissing them as “unreliable.”

The Commission has found that the carrier has inflated the value of key assets, chiefly overvaluing Telecom NZ’s access network by more than a billion dollars.

Telecommunications Commissioner Dr Ross Patterson said the carrier had used "poorly applied accounting principles in the valuation of assets and the reporting of product statements."

He added that Telecom had not satisfied the Commission in that its 2009/10 trenching discount factors are objectively justifiable and, in particular, that they reflect economies of scale.

“As a consequence, a number of costs, including the cost of providing rural phone lines - for which Telecom has reported a loss - are likely to be substantially overstated,” he added.

Under the New Zealand Telecommunications Act, Telecom New Zealand must publish financial statements and other information about its network, wholesale and retail business activities and services in a form determined by the Commission. This information provides data to the telecommunications industry on the operations and behaviour of the carrier.

This is not the first time that the carrier has had reporting issues with the Commerce Commission. Last year, Telecom NZ overvalued fixed assets by NZ$711m, using current cost accounting methodology, which takes into account current values then depreciated, rather than the regulator's preferred historical cost accounting.

The Commission is currently considering if Telecom NZ should re-publish 2009/10 regulatory financial statements to address over-estimation.

Telecom group general counsel Tristan Gilbertson said in a statement that the carrier had abided by Commission requirements.

“Those requirements needed to be interpreted and for certain key areas there are many possible valid interpretations that can be taken. Valuation methodologies, for example, have an element of judgment and subjectivity. Different interpretations can produce quite different results,” he said. ®

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