New Zealand's government said on Wednesday it would not change its plan to force the former state telephone monopoly Telecom Corp. of New Zealand to split into three separate operating divisions.
The government had been considering an alternative proposal by Telecom to spin off its phone network arm into a separate company.
Communications Minister David Cunliffe said Telecom now has 20 days to draft a separation plan, with the split to come into force by March 31, 2008.
"This will underpin increased competition and efficient investment for the long-term benefit of all New Zealanders," Cunliffe said in a statement.
In May 2006 the government ordered Telecom to open its phone network to competitors and split into wholesale, retail and network divisions to speed up the introduction of cheap, fast internet services and greater competition in telecommunications.
Shares in Telecom, New Zealand's largest listed company, closed on Tuesday at NZ$4.30, having traded between NZ$4.08 and NZ$5.15 in the past year.
In April, Telecom floated the idea of selling its fixed line phone network, which has a book value of around NZ$2 billion (US$1.49 billion).
It said the government reforms were unworkable and would result in a network funding shortfall of NZ$1 billion that could prevent the government from fulfilling pledges on high-speed broadband access.
In early July, Cunliffe agreed to talk with Telecom about its proposal, but said if no conclusion was reached within two months, the operational split would be implemented.
Cunliffe said on Wednesday that Telecom retained the option to pursue a structural separation at a later date.
Telecom dominates the fixed line phone market, from which it gets around three quarters of its income, competing with the local subsidiary of Australia's Telstra Corp.
It new chief executive Paul Reynolds from Britain's BT Group, is due to start within the next few weeks, and analysts say his job will be to guide the company through the regulatory changes while protecting earnings.