TELECOM NEW ZEALAND APPOINTS PAUL REYNOLDS AS CHIEF EXECUTIVE OFFICER

28 June 2007

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Telecom New Zealand today announced that Dr Paul Reynolds has been appointed as its Chief Executive Officer, effective from late September 2007.

Paul is currently CEO of BT Wholesale, the wholesale business of UK-based telecommunications and IT company BT Group.

Paul joined BT in 1983 after completing a doctorate in geology at the University of London. Since then he has had a distinguished career, encompassing senior leadership roles in sales and marketing, strategy, information systems, broadband, and guiding BT’s wholesale business through the complex process of operational separation, when Openreach was created. He has served on BT’s Board of Directors since 2001.

Paul will succeed Theresa Gattung, who leaves Telecom on Friday after twelve years at the company, the past eight as the company’s CEO.

Simon Moutter has been appointed as acting CEO until Paul Reynolds formally takes up his role. Simon has held a variety of roles at Telecom, including that of Chief Operating Officer, and has a deep understanding of the business.

Chairman Wayne Boyd said he and the Telecom Board were delighted, after a global recruitment process, to have secured the appointment of Paul Reynolds.

“Globally there are few leaders in the telecommunications industry with Paul’s combination of skills, knowledge and experience,” Mr Boyd said.

“Paul has led programmes of significant change at one of the world’s largest telecommunications companies, in a regulatory environment that has parallels to New Zealand’s.”

In 2006, the Telecommunications Industry Association of America awarded Dr Reynolds its ‘Global Icon’ award for his leadership and innovation.

“Given his senior contribution at BT, in a wide variety of roles, Paul is ideally placed to lead one of Australasia’s most significant telecommunications and IT companies at this time.”

Paul Reynolds said he and his family were looking forward to coming to live in New Zealand.

“I’m passionate about the telecommunications industry and its power to transform the way people interact, live, work and play.

“I’ve been a keen observer of the New Zealand experience, and am now looking forward to leading a company that will help to shape the country’s future.”

Paul Reynolds will be based in Auckland and commence his new role at Telecom in late-September. His appointment is subject to the conditions set out in his summary of employment terms, below. His career summary is also below.

ENDS

Contact:

Mark Watts, Head of External Media, +64 (0)272 504 018
or
Phil Love, Media Manager, +64 (0)272 448 496



PAUL REYNOLDS - SUMMARY OF KEY TERMS

The key terms of the employment arrangement are summarised below. These terms have been established taking into account the high calibre of Mr Reynolds, external expert advice on both best practice remuneration structures, and NZ, Australian and international comparative company benchmarks.

The remuneration package is linked to the performance of the Telecom Group so that higher levels of performance attract higher rewards, and is aligned with shareholder outcomes.


Term

The employment agreement is for an indefinite duration, subject to the termination provision detailed below. Mr Reynolds will commence employment on the 27th September 2007.


Remuneration

There are three components to Mr Reynolds’ remuneration package, the quantum of which will be reviewed annually. Any grants of equity are subject to the approval of shareholders which will be sought at the 2007 annual shareholders meeting in October.

• Base Remuneration of NZ$1,750,000 per annum.

• Annual Performance Incentive with a target value of NZ$1,750,000. The actual short term incentive awarded will be determined by the Board based on Telecom and CEO performance against annual performance criteria. The Annual Performance Incentive award will be delivered 60% in cash and 40% in restricted shares (subject to shareholder approval) following the end of the financial year. The number of restricted shares to be awarded will be determined by dividing the after tax value of 40% of the award by the share price on the date of issue. Shares granted will be restricted from sale or disposal for three years from grant and will vest to the benefit of the Executive unless they resign or are terminated for cause during that period. Dividends will be payable on these restricted shares.

• A long-term incentive (LTI) of up to $1,750,000 by way of performance share rights with a zero-exercise price, subject to the approval of shareholders.

Allocation
The number of share rights issued will be calculated by dividing the LTI amount ($1,750,000) by the share price on the date of the issue. The initial effective date will be the commencement date.

Vesting Periods
For the initial grant of long-term incentive only, one-third of the share rights will be eligible for vesting after one year, another one-third will be eligible after two years and the final one-third of the share rights will be eligible for vesting after three years. Subsequent grants of share rights are expected to be eligible for vesting after three years.

Vesting Conditions
The ability to vest any of the share rights and the number of share rights that will vest following the end of the vesting period is dependent on achievement of performance hurdles. Unvested share rights will automatically lapse. No value will accrue to Mr Reynolds unless Telecom’s Total Shareholder Return (TSR) meets the 50th percentile of a peer comparator group. If Telecom TSR performance is equal to the 50th percentile of the comparator group then half the performance rights in a tranche become exercisable, increasing on a straight line basis such that all performance rights in a tranche may be exercised if Telecom TSR is at or above the 75th percentile of the TSR of the comparator group.


Termination
• Mr Reynolds may resign at any time giving six months’ notice.

• Telecom may terminate Mr Reynolds employment with three months’ notice. A payment of twelve months’ base remuneration will be made. If the Company gives notice of termination within the first three years of employment, the termination payment will be increased if the period from the end of the notice period to the end of the first three years of the term is greater than twelve months, to be a payment equal to the base remuneration that would have been earned during this period. A payment equal to the target value of the annual performance incentive for one year will also be made.

• If there is a change of control that results in Mr Reynolds no longer being the CEO of a publicly listed company then he will be able to terminate his employment with three months’ notice and receive payment as if Telecom had terminated his employment.

• Telecom may also terminate Mr Reynolds employment without notice for defined causes in which case he will receive no further entitlement to any remuneration.

• Any additional entitlement to STI and LTI on termination due to notice by Telecom or change of control will be at the discretion of the Board, subject to the rules of those schemes. In particular, if Telecom terminates Mr Reynolds employment or there is a change of control then any grants of LTI that are more than half-way through their restricted period will vest on a pro-rata basis.


Restraints

For a period of twelve months after ceasing employment with Telecom Mr Reynolds is restrained in New Zealand, Australia and other countries were Telecom operates in a substantial manner from being associated with a business operating in a sector within which Telecom competes. He is further restrained for the same period from soliciting from Telecom, Telecom employees or customers.


Relocation provisions

To assist with relocation Mr Reynolds will be reimbursed for reasonable
relocation expenses.

Dr PAUL REYNOLDS: CAREER SUMMARY AND DETAILS


2000-Present Chief Executive, BT Wholesale

2001-Present Board Member, BT Board

2004-Present Board Member of E-Access (Japan)

1998-2000 Managing Director, BT Network & Information Services

1998 Director, BT UK Effectiveness

1997-1998 Director, Strategy

1994-1997 General Manager, Scotland

1993-1994 Programme Director, Information, Communications & Entertainment

1991-1993 Director, Office of the Chairman

1988-1991 Senior Manager, International Voice Products

1983-1988 Roles in product management, marketing, new business development & strategy in the UK & international markets

Paul Reynolds has a PhD in geology from Bedford College, University of London


CAREER DETAILS

• 2000-present Chief Executive, BT Wholesale

Reporting to BT CEO Ben Verwaayen, Paul has led a growing £8bn business with an annual investment programme of over £2bn. In addition, he holds executive responsibility for BT’s 21st century network transformation programme. Paul led the delivery of broadband in BT, now with some ten million customers, and the most extensive footprint in the world. In 2005-2006 Paul designed and led BT’s access network Operational Separation and the creation of Openreach. He is also responsible for BT Group Chief Technology Office and One-IT, BT’s IT and systems activities.


• 2004-Present Board Member of E-Access (Japan)

Paul joined the Board of E-Access as a Non-Executive Director. E-Access is a highly successful new entrant Broadband company and has just launched a 3G mobile business, e-mobile.

• 1998-2000 Managing Director, BT Network & Information Services

This was the biggest line job in BT, with leadership of some 34,000 people in networks, information systems and the BT Development Labs, Adastral Park. Paul built the biggest IP transport network in Europe, Europe’s biggest web-hosting facility and established over ten months, BT’s access DSL capability, simultaneously raising service standards to new heights.


• 1998 Director, BT UK Effectiveness

Paul reported to the Group Managing Director with responsibility for restructuring BT in the UK to make it more market-focused and for driving BT’s ‘Efficiency Challenge’ programme.


• 1997-1998 Director, Strategy

This was a short term assignment leading the BT team in negotiations with AT&T to form a joint venture from their global businesses. The two companies agreed to form the Concert JV.


• 1994-1997 General Manager, Scotland

Paul led approximately 4,500 BT people who planned, built and delivered telecommunications services to two million customers across Scotland.

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