The so-called operational break-up, into retail, wholesale and network arms, is more radical than a requirement contained in the Telecommunications Amendment Bill for separate accounts from the divisions.

The split also goes well beyond Telecom's counter-offer to divide its operations into two companies, retail and wholesale, the latter including its network.

The revamp of Telecom would stop short of ownership separation, which could ultimately see three separate companies listed on the stock exchange.

However, Telecom is lobbying hard to remove even stronger measures which would give the Government the power to force an ownership split into three "baby Telecoms" if the operational split did not meet expectations.

Telecom management fear this so-called "Sword of Damocles" provision would discourage investment and hit the company's share price.

They are also concerned that competitors would say the new environment was not working if more draconian measures were hanging over its head.

Government sources said the committee was being given a strong steer from Prime Minister Helen Clark's office to adopt the three-way split. It was expected there would be "a meeting of minds" with the committee.

If not, the Government would introduce amendments to impose the split when the bill came back to the House.

Under the split, the three divisions would have separate management, though they would likely have the same chief executive, board and ownership.

Telecom spokesman John Goulter said the company was waiting for the select committee report and would not comment till then. "We put up a proposal, but we said it was a proposal and it was one to negotiate."

The government is not happy in the least and Telecom is paying and SHOULD be learning a hard lesson.

I hope they split up the ownership too, very good stuff, it seems that clearly with the LLU and the Government strong arming Telecom there is now nothing that stands in the way of better internet service other than of course time for all of this to pay off...

There has been innovation, now hopefully there can be an enviroment that may let it thrive, and until it does the existing network can give a faster fix.

It is interesting, the government never indicated it was going to go this hard, so I think it's clear that it hoped that Telecom's behavious since May might have improved but clearly it has failed in many ways including charging wholesale ISP's more than it charges it's own customers, not rolling out ADSL2+, rolling out the full speed plans at the last possible moment wasting months and then clearly not being ready for it.

Telecom hasn't 'got it' yet, but it had better 'get it' soon or it will be regulated beyond recognition! Wake up call for Telecom, Auntie Helen ain't kidding!