29 JUNE NEW ZEALAND GAZETTE 1803

TELECOM SOUTH LIMITED

NOTES TO THE FINANCIAL STATEMENTS

(CONTINUED)

13 CONTINGENT LIABILITIES (Continued)

LAWSUITS AND OTHER CLAIMS

As previously disclosed, a competitor had filed proceedings against Telecom in connection with a request for a local service interconnection arrangement. The basis of claim was that Telecom, in offering certain terms and conditions of service including a proposed access levy to be paid by the competing operator, was in breach of Section 36 of the Commerce Act 1986. Substantive hearings in the suit were completed in October 1992 and judgement was given in December 1992. The High Court of New Zealand held that Telecom is entitled to charge an access levy, and recover from competing operators, a contribution to the residential cross-subsidy. The High Court also accepted that the cost of operating the residential telecommunications service in New Zealand is currently being subsidised by revenue from national calls and business customers. Finally, while the High Court found Telecom to be in breach of Section 36 of the Commerce Act in respect of some aspects of its offer to the competing operator, damages were not quantified. The Court suggested that Telecom and the competing operator should address the question of damages as part of continuing negotiations. On 5th February 1993 the competing operator filed with the Court of Appeal an appeal against the decision of the High Court, with the date for hearing of the appeal set for August 1993. In the light of the competing operator’s appeal, Telecom is also cross-appealing the finding of breach of Section 36 of the Commerce Act. Telecom is unable to assess the likely outcome of these appeals.

The same competitor has commenced an arbitration against Telecom in respect of non-code access. The competitor is claiming damages for alleged misrepresentation and delay in provision of non-code access. The likelihood of the competitor succeeding in its claim or the amount of damages is at present not possible to assess. Telecom vigorously denies these claims.

This same competitor has also threatened or commenced a number of other pieces of litigation and/or arbitrations against Telecom. Telecom vigorously denies these claims.

Various other lawsuits, claims and investigations have been brought by or against the Company. The Board of Directors believe that in the event of an unfavourable outcome, such matters will not have a material adverse effect upon the Company’s financial position.

GUARANTEES

The Company has guaranteed, together with other subsidiary companies, approximately $1,263 million of the indebtedness of the parent company and other subsidiary companies at 31 March 1993, together with, in each case, interest thereon, principally under the following agreements:

(i) $436.8 million under a trust deed made as of 25 October 1988 with the New Zealand Guardian Trust Company Limited providing for the constitution and issue of securities in respect of indebtedness from time to time of the parent company and/or any guaranteeing subsidiary.

(ii) $367 million under trust deeds made as of 20 September 1989 and 3 April 1992 and subsequent supplemental trust deeds with the Law Debenture Trust Corporation PLC providing for the constitution and issue of securities in respect of indebtedness from time to time of the parent company and/or any guaranteeing subsidiary.

(iii) British pounds 120.5 million (NZ$336.6 million) under a deed poll dated 12 November 1990.