Telecom has overvalued a number of key assets, including its access network, the Commerce Commission says.
In its summary and analysis of Telecom's latest regulatory financial statements, for the year ending June 30 2010, the Commission says the statements are "unreliable for regulatory purposes" because of the overvaluation of the assets.
Telecom is required to file regulatory financial statements as part of the December 2006 amendments to the Telecommunications Act. These statements are separate from Telecom's statutory financial reporting requirements, such as the annual report.
Telecommunications Commissioner Dr Ross Patterson says in a statement from the Commission: “In valuing its assets, Telecom is required to use processes which are objectively justifiable and reasonable.
"However, Telecom has not satisfied the Commission 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.”
The Commission's summary and analysis of the Telecom regulatory financial statements can be found here.
Telecom has responded, with a statement today saying: "Telecom has noted the Commission’s concerns relating to the valuation methodologies applied in certain areas of the regulatory accounts."
Telecom group general counsel Tristan Gilbertson says in the statement: “The Commission amended their requirements for FY10 disclosures, and we have abided by them.
“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.
“However, if the Commission provides us with any additional clarification then we will have regard to that in the production of the next set of regulatory accounts,” Gilbertson says.