By This Deed It Is Agreed
Introduction
1. This Deed includes or records provisions that operate in place of, and in addition to, the KSO, as set out in this Deed. The parties intend that this Deed shall be deemed to be a TSO instrument in accordance with the Act.
2. The Crown, including in its capacity as holder of the Kiwi Share, agrees that for so long as TCNZ's constitution and the KSO letters are a deemed TSO instrument, then, subject to this Deed, the KSO ceases to have effect during the period that this Deed is a deemed TSO instrument.
3. The provisions of this Deed contain an agreement of the Kiwi Shareholder under, and of the kind referred to in, clause 5.1 of the First Schedule of TCNZ's constitution.
4. However:
4.1 if this Deed ceases to be a deemed TSO instrument in accordance with the Act, and TCNZ's constitution and the KSO letters have not ceased to be a deemed TSO instrument in accordance with the Act, TCNZ's constitution and the KSO letters apply instead of this Deed, and this Deed shall come to an end;
4.2 pursuant to clauses 16 to 19, the parties reserve their positions with respect to certain interpretations relating to the specified KSO. Should a final court of competent jurisdiction give a judgment in a party's favour supporting the contention of that party on an issue under clause 16, clauses 18 and 19 shall apply;
4.3 nothing in this Deed (nor any material relating to this Deed or the negotiation of it):
- alters or revokes TCNZ's constitution;
- affects the provisions of TCNZ's constitution other than clause 5 of the First Schedule of TCNZ's constitution; or
- affects the construction or interpretation of the specified KSO.
5. A number of detailed matters and certain definitions are included in the Schedule to this Deed. The Schedule is part of this Deed.
Obligations Relating to Principles
6. Unless the Crown agrees in writing otherwise in any particular case or class of cases, and subject to the other terms and conditions of this Deed:
6.1 TCNZ and TNZL shall, and TCNZ shall ensure that those of its subsidiaries which from time to time provide in New Zealand local residential telephone service shall, observe Principles 1 to 4 in clause 7;
6.2 the business and powers of TCNZ and TNZL shall not be managed or exercised in a manner which is inconsistent with those Principles.
Principles
7. Subject to the other terms and conditions of this Deed, the following principles relating to the supply of local residential telephone service in New Zealand shall apply:
7.1 Principle 1 - A local free-calling option for local residential telephone service will be maintained for all Telecom residential customers. Telecom may, however, offer other optional packages (including on a geographical or customer segment basis and which include call and other charges) to those who wish to take them as an alternative.
7.2 Principle 2 - Telecom will charge no more than the standard residential rental for local residential telephone service. The pre-GST standard residential rental (as it was at 1 November 1989) will not be increased in real terms provided that the overall profitability of Telecom's fixed business, as evidenced by audited accounts prepared for that business, is not or will not be unreasonably impaired. Telecom may selectively offer lower prices (including on a geographical or customer segment basis) if it wishes.
7.3 Principle 3 - The line rental for local residential telephone service for Telecom residential customers in rural areas will be no higher than the standard residential rental and Telecom will continue to make local residential telephone service as widely available as it is at the commencement date.
7.4 Principle 4 - Directory assistance is to be continued on the basis set out in the exchange of letters between the Crown and Telecom in 1997.
8. Telecom may use any method or any technology in providing the services it is obliged to provide in this Deed, provided that doing so does not place Telecom in breach of this Deed.
Unreasonable Impairment of Overall Profitability
9. If Telecom considers that the overall profitability of Telecom's fixed business has been, is being or will be unreasonably impaired in respect of Principle 2 and wishes to increase its standard residential rental to remove or avoid that unreasonable impairment, TCNZ and TNZL shall notify the Crown of the desire to increase the standard residential rental for this reason. Any such notice shall include:
9.1 the date of the proposed increase;
9.2 full details of the proposed increase;
9.3 information which Telecom considers justifies the proposed increase.
10. When considering its view on Telecom's proposal, the Crown will give full and due consideration to projected forward looking profits of Telecom's fixed business and the recovery and past recovery of a reasonable weighted average cost of capital for that business having regard to the matters in clause 13.
11. The Crown shall inform Telecom in writing of the Crown's considered view on whether the proposed increase in the standard residential rental would be a breach in respect of Principle 2 no later than 65 working days after the date on which the Crown receives all information reasonably required to consider Telecom's notice under clause 9. Telecom shall not increase the standard residential rental in excess of real terms pricing before the earlier of the date that the Crown informs Telecom in writing of the Crown's view and the expiry of the 65 working day period. However, any such increase may take into account unreasonable impairment of profitability from (but not before) the commencement ("start date") of the financial year of Telecom immediately preceding the financial year of Telecom in which the notice under clause 9 is given, as well as subsequent projected unreasonable impairment of profitability.
12. If the Crown considers that any such increase is, or would be, a breach in respect of Principle 2 it may take such legal proceedings against Telecom as the Crown considers appropriate. Likewise, Telecom may take such proceedings in respect of the matters referred to in clauses 7.2, 9 to 11, and 13 as Telecom considers appropriate.
13. The parties agree that in determining (including the Court determining) whether there is or would be a breach in respect of Principle 2, then as well as the evidence of the audited accounts prepared for Telecom's fixed business, relevant factors include (without limitation):
13.1 the appropriateness of the methodology used in preparing such accounts, and application of that methodology;
13.2 the projections of forward looking profits for Telecom's fixed business, the reasonableness of the assumptions made in deriving these projections, and the reasonableness of the period for which the projected recovery is sought; and
13.3 the projected recovery and past recovery of a reasonable weighted average cost of capital for Telecom's fixed business from the start date referred to in clause 11.
14. Any increase in the standard residential rental which constitutes a breach in respect of Principle 2 is a material breach of this Deed by Telecom.
Further Provision Regarding Standard Residential Rental
15. Nothing in this Deed will be construed as requiring Telecom to reduce the standard residential rental for a Telecom residential customer by reason of that customer taking local residential voice telephone service alone and not in combination with local residential dial up data service, or vice versa.
Reservation of Positions
16. The parties reserve their positions as to:
16.1 which calls and services are covered by "ordinary residential telephone service" under the specified KSO;
16.2 whether the Crown's consent is required under the specified KSO before Telecom could sell all or part of Telecom's local loop network assets including its customer base;
16.3 whether in any dispute of a matter under clauses 16.1 and 16.2, the conduct of the parties subsequent to 11 September 1990 should be taken into account.
17. In order that Telecom's or the Crown's ability to contest or dispute the matters described in clause 16 is not compromised:
17.1 this Deed and any Kiwi Share agreements (excluding the specified KSO itself); and
17.2 any materials relating to the documents described in clause 17.1 (excluding the specified KSO itself) or the negotiation of them;
will not be taken into account. To avoid doubt, materials preceding the specified KSO may, to the extent permitted by law, be taken into account.
18. Should a final court of competent jurisdiction give a judgment in a party's favour supporting its contention on an issue:
18.1 under clause 16.1, that party may elect to require this Deed to be amended consistently with the court's decision by removing a call or service from, or adding a call or service to, any of the lists of calls and services set out in the service definitions in clauses 2 to 9 of the Schedule, effective from the date of the judgment (but, for the avoidance of doubt, without retrospective effect). However, notwithstanding any decision of the court, or the foregoing provisions of this clause 18.1, no election or amendment shall be made which has the effect of:
- deleting any call or service from the calls and services described in clause 2 and clause 5 of the Schedule, or removing the Telecom residential customer's ability (under Principle 1) to make standard Internet calls;
- deleting any call or service from the calls and services described in clause 3.3, clause 6.3 and clause 9.3 of the Schedule;
18.2 under clause 16.2, that party may elect to require this Deed to be amended consistently with the Court's decision, effective from the date of the judgment.
If an election is made that is permitted by clause 18.1 or clause 18.2, the amendment shall be automatic, notwithstanding clause 33. However, if either party so requires, the parties shall enter into a variation of this Deed to record in writing the terms of the automatic amendment.
19. In no event shall Telecom's obligations under Part II of the Schedule be directly or indirectly extended or reduced by an amendment to this Deed pursuant to clause 18. However, clauses 19 and 20 are without prejudice to any obligation (other than those obligations in Part II of the Schedule) as to service quality implicit in Telecom's obligations under this Deed (each party reserves its position as to whether there is any obligation and, if so, the nature and quality of that obligation).
Local Residential Telephone Service Quality Measures
20. The parties agree that there can be no guarantee that local residential telephone service will always be available or free of fault to every Telecom residential customer at all times. Telecom agrees that local residential telephone service shall meet the applicable local residential telephone service quality measures in Part II of the Schedule.
21. Telecom is to:
21.1 report to the Crown and (pursuant to the Act) the Commerce Commission at least annually on its performance against the local residential telephone service quality measures;
21.2 disclose to the Crown and (pursuant to the Act) the Commerce Commission the methodology (including proxy sampling methods), the relevant calculations and reasonable supporting information for the relevant calculations;
21.3 have that methodology and its implementation audited for its appropriateness to achieve a sensible and pragmatic, but robust, analysis of performance against the local residential telephone service quality measures; and
21.4 disclose that audit report to the Crown and (pursuant to the Act) the Commerce Commission.
However, in connection with the local residential telephone service quality measures set out in clause 11.2 of the Schedule:
21.5 nothing in clause 21.1 shall apply;
21.6 where the Crown considers with good cause that there is or is likely to have been a breach of those local residential telephone service quality measures, Telecom will provide a report on its performance against those measures to the Crown, and clauses 21.2 to 21.4 shall apply in relation to that report (except that there shall be no obligations of disclosure to the Commerce Commission).
Commencement
22. This Deed comes into effect on the commencement date.
Review of Deed
23. Either party ("the first party") may at any time after the commencement date give notice that it wishes to renegotiate any or all terms of this Deed.
24. On receipt of such notice by the other party, the parties shall follow a process:
24.1 for the first party to raise concerns which are to be given full and due consideration by the other party; and
24.2 to ensure a reasonable and considered dialogue on these concerns.
25. The Crown will give full and due consideration to the issue of non-genuine 111 calls with the aim (subject to the Crown receiving information reasonably required from Telecom) of concluding discussions by 30 April 2002.
Termination
26. The Crown may terminate this Deed:
26.1 on 30 working days' notice, if there is a material breach of a material obligation of the Deed by Telecom not capable of remedy;
26.2 if there is a material breach of a material obligation of the Deed by Telecom capable of remedy, (and is not of a type which has arisen on a repetitive basis in the past) by 30 working days' notice to Telecom if such a breach has not been remedied by Telecom before 60 working days from the date of a notice given by the Crown to Telecom setting out details of the breach and requesting that it be remedied; or
26.3 on 30 working days' notice, if Telecom fails to meet in a material way all or any of its material obligations under this Deed continuously for 50 working days as a result directly or indirectly of a force majeure event.
If this Deed ceases to be a deemed TSO instrument for any reason, this Deed shall come to an end.
27. The termination provisions under clause 26 are additional, and without prejudice, to any other right or remedy either party may have at law. Clauses 4.3, 29, 30, 31 and this clause 27 shall survive termination of this Deed.
Information
28. TCNZ and TNZL shall provide the Crown with such information as the Crown may reasonably request:
28.1 to enable the Crown to give full and due consideration to the matters it must consider under clauses 10 and 11;
28.2 in respect of any claim by Telecom that clause 34 applies.
Confidential Information
29. The Crown undertakes that it will:
29.1 not disclose, without the prior written consent of TCNZ and TNZL, any confidential information supplied to the Crown by Telecom in connection with this Deed to any person other than:
- the Crown's Ministers; and
- officers, employees, contractors, agents and professional advisers of or to the Crown, each of whom is under an express or implied obligation of confidence;
directly concerned in the operation of this Deed, unless such information is:
- publicly available at the time of receipt by the Crown or has since become publicly available other than by breach by the Crown of this clause;
- required to be released under any applicable law or any Standing Orders of the House of Representatives; or
- used by the Crown in legal proceedings in connection with this Deed.
Indemnity
30. In the event of the Crown bringing proceedings to enforce any of TCNZ's and TNZL's obligations under this Deed and having judgment ultimately awarded in its favour, TCNZ and TNZL shall indemnify the Crown against all the reasonable costs of that action on a solicitor and own client basis. This indemnity does not cover any costs in connection with any proceedings brought by the Crown in connection with the matters referred to in clauses 16 to 19.
Enforceability
31. This Deed is not intended to create any obligations enforceable at the suit of any persons other than TCNZ and TNZL or the Crown.
No Limit on Enactments or Rules of Law
32. Nothing in this Deed shall limit, or require Telecom to contravene, any enactment or rule of law of mandatory application.
Amendment
33. Any amendment to this Deed must be in writing and signed by the parties.
Force Majeure
34. Telecom shall not be liable to the Crown as a direct or indirect result of its failure to perform its obligations under this Deed by reason of an event or series of events of force majeure, being any cause or circumstance beyond Telecom's reasonable control including, but not limited to, acts of God, riot, strikes, lock-outs, labour disputes, fires, war or flood.
35. If Telecom is unable to fulfil its obligations due to an event of force majeure it will immediately:
35.1 notify the Crown of the reasons for its failure to fulfil its obligations and the effect of such a failure; and
35.2 take all practicable steps that Telecom acting as a reasonable and prudent telecommunications service provider would take to avoid or remove the cause and perform its obligations, except that Telecom is not required to change the way it would otherwise deal with any strike, lock-out or labour dispute.
36. Unless otherwise agreed, during the continuance of an event of force majeure Telecom's obligations under this Deed affected by force majeure shall be suspended to the extent that performance of those obligations is prevented and will resume as soon as possible after the cause or circumstance has ceased to have effect.
37. Where a force majeure event is also:
37.1 a specified matter beyond Telecom's reasonable control, then clauses 26.3 and 35;
37.2 an outage in an access network which is unplanned, then clauses 26.3 and 35.1;
37.3 an outage in an access network which was planned, then clauses 26.3 and 35;
shall not apply with respect to that force majeure event.
38. Subject to clause 37, clauses 34 and 36 only apply to relieve Telecom from liability, and Telecom's obligations under clause 36 are only suspended, if Telecom complies with clause 35.
Other TSO Instrument Costs
39. Subject to clause 40, nothing in this Deed shall prevent or limit Telecom from imposing a charge on persons to whom Telecom supplies services to recover Telecom's costs and expenses in relation to a TSO instrument other than this TSO instrument ("other TSO instrument costs").
40. Telecom may pass on to Telecom residential customers to whom local residential telephone service is provided under Principle 3, other TSO instrument costs:
40.1 properly referable, under the procedures carried out by the Commerce Commission as set out in the Act, to those Telecom residential customers; or
40.2 where the TSO instrument costs are not, or cannot be, properly referable under those procedures to those residential customers, in the proportion that the revenues derived by Telecom from those residential customers bears to the revenues derived from Telecom's New Zealand customer base.
No Waiver
41. Except where a party has signed an express written waiver of a right or power under this Deed, no failure to exercise a right or power under this Deed (including, without limitation, clause 16 of this Deed) prevents, or shall be construed as prejudicing, the exercise of that or any right or power on that or any other occasion. A written waiver applies only to the right or power and on the occasion specified in it.
Notices
42. Any notice required to be given to a party under the provisions of this Deed shall be in writing and shall be deemed to have been given:
42.1 as soon as the same is personally delivered to the address set out below (or such other address as a party may notify to the other by notice); or
42.2 two working days following the posting of the same by prepaid registered mail to such address; or
42.3 immediately if transmission by facsimile is effected to the facsimile number set out below (or such other facsimile number as a party may notify to the other by notice);
Provided That if transmission by facsimile is effected after 5.00 pm on a working day or any time on a day other than a working day, then such notice shall be deemed to be given the next working day following the transmission.
The Crown
The Minister of Finance
Parliament Buildings
Facsimile: 04-495 8442
The Minister of Communications
Parliament Buildings
Facsimile: 04-495 8466
TCNZ
Telecom Corporation of New Zealand Limited
Telecom @ Jervois Quay
68-86 Jervois Quay
Wellington
Attention: Company Secretary
Facsimile: 04-498 9176
TNZL
Telecom New Zealand Limited
Telecom @ Jervois Quay
68-86 Jervois Quay
Wellington
Attention: Company Secretary
Facsimile: 04-498 9176
Kiwi Shareholder
43. The Minister of Finance executes this Deed on behalf of the Crown, as holder of the Kiwi Share.
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