Telecom Corporation of New Zealand Limited


MARKO BOGOIEVSKI
Chief Financial Officer


13 April 2007



Mr Larry Spirgel
Assistant Director
Division of Corporation Finance
Securities and Exchange Commission
Mail Stop 3720
Washington, D.C. 20549
United States of America




Dear Mr Spirgel

Telecom Corporation of New Zealand Limited
Form 20-F for Fiscal Year Ended June 30, 2006
Filed September 25, 2006
File No. 1-10798

This letter responds to your letter dated March 19, 2007 relating to the
comments of the staff of the Securities and Exchange Commission in connection
with the abovementioned filing.

The responses to the staff’s comments are numbered to relate to the
corresponding comments in your letter. Capitalised terms used and not
otherwise defined herein have the respective meaning set forth in the filing.

Income Statements, page F-2

1.	Please tell us your basis for including the line items, “earnings/(loss)
before interest, taxation, depreciation, amortisation and minority interests”
and “earnings/(loss) before interest, taxation and minority interests” on the
face of your income statements. Further, tell us why you believe it is
appropriate to exclude items, such as depreciation and amortisation and net
interest and other financing costs, from these line items which reflect the
results of your operating activities. In this regard, refer to paragraphs BC
12 and BC 13 of IAS 1.

We respectfully advise the Staff that Telecom has used the subtotals referred
to above in its financial statements for a number of years. The subtotals
provide relevant information for users of the financial statements in gaining
an understanding of Telecom’s financial statements. Telecom believes the
consistency in the use of this non-GAAP measure over time will have helped
stakeholders to adjust to the major change in underlying data that came about
with the move to IFRS. The users of the financial statements are able to
compare and contrast the old measures with the new because Telecom has
provided a familiar subtotal for them.

IAS 1, paragraph 83, permits the inclusion of additional subtotals on the face
of the income statement when such presentation is relevant to an understanding
of the entity’s financial performance. The subtotals are labelled to indicate
to readers of the financial statements exactly what it excluded from that
subtotal.


Our interpretation of BC 12 and BC 13 of IAS 1 is that operating activities
includes expenses such as depreciation and amortisation. We appreciate the
staff’s concerns, but we do not believe that the use of a sub-total before
depreciation and amortisation precludes those items from being operating
expenses.

As the subtotal ‘(Loss)/earnings before interest and taxation’ would best
represent the result of Telecom’s operating activities (as described in BC 12
and BC 13) in future filing this will be labelled as ‘Operating earnings
before interest and taxation’ to improve clarity.

Note 1. Statement of Accounting Policies

Revenue Recognition, page F-7

2.	We note that you recognise handset revenues at the time of delivery. Please
tell us why this revenue recognition policy is appropriate under NZ IFRS.

IAS 18, Revenue, requires revenue to be recognised when all of the following
conditions have been satisfied:

a.	The entity has transferred to the buyer the significant risks and rewards
of ownership of the goods;
b.	The entity retains neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods sold;
c.	The amount of revenue can be measured reliably;
d.	It is probable that the economic benefits associated with the transaction
will flow to the entity; and
e.	The costs incurred or to be incurred in respect of the transaction can be
measured reliably.

Addressing each point in relation to the sale of a handset:

a.	Telecom transfers the legal title of the handset upon delivery. Upon the
customer accepting the handset, the handset is available for the customer to
use and the customer bears the risks of ownership (e.g. theft or obsolescence)
subject to a standard warranty. IAS 18 allows for normal warranty provisions.
b.	Telecom does not retain managerial involvement or effective control over
the handset.
c.	The revenue is measured reliably as there is a fixed sales price for the
handset.
d.	The sales proceeds are usually received prior to the delivery of the
handset, unless sold on deferred payments. In either case it is considered
probable based on historical customer defaults that the sales proceeds will
flow to Telecom.
e.	The costs can be measured reliably as the cost of the handset, plus any
direct selling costs (such as commission) and are easily determined.

We believe that all of the revenue recognition criteria in IAS 18 are
satisfied upon delivery of the handset to a customer, therefore Telecom
believes it is appropriate to recognise revenue and related costs at the time
of delivery.

3.	Please tell us whether you sale handsets below cost. If so, tell us why you
are not required to reduce your handset inventory to its net realisable value
under NZ IFRS.

The standard retail price of a handset exceeds the cost of the handset,
however Telecom may discount the selling price of the phone if the customer
connects to a term contract (with the extent of the discount depending on the
plan selected by the customer). Accordingly there are circumstances when
Telecom will be selling handsets below cost.

Telecom’s accounting policy is to value handsets at the lower of cost and net
realisable value. As at the balance sheet date it is not possible to determine
whether a handset will be sold above or below cost as this will only be known
at the point of sale. Where it is known that a particular handset is obsolete,
the inventory value of these handsets will be measured at net realisable
value. The total value of handset inventory at year end was approximately $30
million.

4.	Please tell us why it is appropriate to recognise revenue from connections
upon the completion of the connections under IAS 18.

We believe it is appropriate to recognise revenue from connections upon the
completion of the connection as IAS 18 states that revenue from the rendering
of services is recognised by reference to the stage of completion of the
transaction at the balance sheet date. Paragraph 10 of the appendix to IAS 18
includes the example of installation fees being recognised upon completion of
the installation, unless incidental to the sale of the goods, when they are
recognised upon sale of the goods. The connection of the handset is closely
related to the sale of the handset, therefore Telecom does not consider
connections to be incidental to the sale of the goods. Due to these facts,
Telecom recognises revenue from connections upon the completion of the
connection.

Accounts receivable, page F-7

5.	You measure accounts receivable at amortised cost using the effective
interest method. We note that you do not have a reconciling item for this
accounting in the US GAAP reconciliation. Please tell us why this accounting
is appropriate under US GAAP. Refer to APB 21.

Telecom does not account for debtors at amortised cost using the effective
interest method under US GAAP but measures debtors undiscounted. Due to the
short-term nature of Telecom’s debtors, measuring the debtors at amortised
cost using the effective interest method in accordance with IAS 39 gives
approximately the same measurement as measuring the debtors undiscounted, in
accordance with APB 21. Any such differences are considered to be immaterial
and no reconciling item between NZ IFRS and US GAAP has been presented.

Derivative Financial Instruments, page F-12

6.	We note that when the forecast transaction that is hedged results in a
non-financial asset or liability, the gains and losses previously deferred in
equity are transferred from equity and included in the initial measurement of
the cost of the asset or liability. Provide us with more details of the nature
of these forecasted transactions and your accounting under IFRS. Further, tell
us your consideration of paragraph 31 of SFAS 133 with respect to your US GAAP
footnote.

Telecom hedges the cost of purchasing mobile handsets and telecommunications
equipment where the purchase is denominated in foreign currency.  Telecom
enters into foreign exchange contracts for certain of these purchases and
includes the gain or loss from the hedging transaction in the determination of
the initial cost of the item of inventory or property, plant and equipment
that arises from these purchases, as permitted by paragraphs 98 and 99 of IAS
39.

Telecom does not apply hedge accounting under US GAAP, therefore Telecom is
required to adjust the carrying value of hedged items and expense the gain or
loss from the hedging transaction in accordance with SFAS 133. No reconciling
item has arisen in respect of the capitalisation of these gains or losses as
the amounts involved have not been material.

Note 4. Key Management Personnel Costs, page F-16

7.	Please separately present the amounts related to short-term benefits under
paragraph 16 of IAS 24 or tell us why it is not required to be separately
presented.

Paragraph 16 requires disclosure of short-term employee benefits. The purpose
of the caption in Telecom’s note of ‘salary and short-term benefits’ is to
clarify that salary is included with the definition of short-term benefits as
defined in paragraph 9 of IAS 24. In future filings this will be labelled
‘salary and other short-term benefits’ to improve clarity.

Note 5. Gain on acquisition of Southern Cross Cables (NZ) Limited (“SCCL”),
page F-18
Note 35. Acquisitions of Subsidiaries, page F-51

8.	We note the value in excess of the purchase price of $60 million was
recognised as a gain. Please tell us the basis for your accounting under NZ
IFRS and US GAAP. Include in your response references to the appropriate
accounting literature.

NZ IFRS
Southern Cross Cables Limited NZ (“SCCL”) was a New Zealand incorporated
subsidiary of the Southern Cross Cables Group (“SCCG”).   Telecom holds a 50%
shareholding in SCCG.  Telecom accounts for its investment in SCCG under the
equity method of accounting under NZ IFRS.

During 2006, Telecom established a leasing company to cost effectively finance
the acquisition of fixed line and mobile network equipment. The leasing
company acquires equipment from third party vendors and then leases the
equipment to operating companies within the Telecom group.

The entity used as the leasing company was SCCL. Telecom acquired SCCL from
SCCG for $10 million.

Significant New Zealand tax losses had arisen in SCCL through a tax treatment
of foreign exchange gains and losses (with a differing tax treatment on the
income and expenditure). Those losses were approximately $210 million. Given
Telecom’s 50% shareholding in SCCG, the New Zealand tax laws on shareholder
continuity mean that the carry forward of these losses would continue to be
met following the purchase of SCCL by Telecom. Telecom was the only
shareholder in SCCG able to meet these requirements.

Telecom expected to be able to offset the losses against future income
generated from the leasing activities to be undertaken by SCCL.

IFRS 3, paragraph 3, requires all business combinations to be accounted for by
applying the purchase method. This required Telecom to measure the costs of
the business combination as the aggregate of the fair values, at date of
exchange, of the assets given, liabilities incurred or assumed, and equity
instruments issued by Telecom in exchange for control of SCCL, plus any direct
costs, in accordance with paragraph 24. Telecom paid $10 million for the
acquisition with negligible direct costs.

Then in accordance with paragraphs 36 and 37 of IFRS, Telecom recognised the
fair value of SCCL’s identifiable assets on the basis that it was probable
that any associated future economic benefit would flow to Telecom. In
accordance with IFRS 3, Telecom assessed the fair value of the tax losses to
be $70 million, being the likely future economic benefit to Telecom of
offsetting those losses against the leasing business’ taxable profits.

IFRS 3, paragraph 56, states that if the fair value of the assets being
acquired exceeds the cost of the business combination then the acquirer must
reassess the identification and measurement of the acquiree’s identifiable
assets, liabilities and contingent liabilities and the measurement of the cost
of the acquisition and then to recognise immediately in profit or loss any
excess remaining after that reassessment. IFRS 3 recognised that this may
occur when an entity makes a bargain purchase. The purchase of SCCL was a
bargain purchase as Telecom was able to purchase carry forward tax losses with
a fair value of $70 million for a cash consideration of $10 million. As noted
above, Telecom was the only entity involved with SCCG that could utilise those
losses under New Zealand tax law. Given this fact the other shareholders in
the SCCG appreciated that the disposal of SCCL was the most efficient way of
realising any value from the company.

Accordingly, consistent with paragraph 56(b) of IFRS 3, Telecom recognised the
$60 million excess of net assets acquired over cost immediately in its income
statement as a gain in the line item “Other gains” and prominently disclosed
the nature and amount of this gain in note 5.


US GAAP
Prior to and at the time Telecom acquired SCCL, SCCG was consolidated into the
Telecom group under US GAAP in accordance with FIN 46R as Telecom bore the
majority of the variable interests in the SCCG, as disclosed in note 37 of the
financial statements. Due to this fact the acquisition of the remaining equity
did not change the consolidated position of the Telecom group and the
acquisition was not treated as a business combination.

Prior to the acquisition of SCCL and in accordance with SFAS 109, Telecom
recognised the tax losses as a deferred tax asset with a corresponding full
valuation allowance on the basis that realisation of these tax benefits was
not likely.  Upon the acquisition of SCCL, which resulted in Telecom’s ability
to control the use of these tax losses, Telecom concluded it was more likely
than not that it would be able to realise the benefit of the tax losses based
on its forecasted future taxable income to be generated by the leasing
business.  Consequently, Telecom eliminated the previously established
deferred tax asset valuation allowance and recognised the benefit into income
in accordance with SFAS 109 at the date Telecom changed its assessment about
the probability of the use of the tax losses, which was when Telecom acquired
all of the equity interest in SCCL.

Because both the NZ IFRS treatment and the US GAAP treatment resulted in an
increase to net income of $60 million, there was no US GAAP reconciling item
presented for this transaction.

9.	Please tell us how you expect SCCL to generate taxable income when it has
not historically done so.

As described above, SCCL was previously not within the control of Telecom.
Upon the acquisition of all of the equity interest in SCCL, Telecom was able
to run its leasing business through SCCL.  Consequently, we believe SCCL will
be able to generate sufficient New Zealand sourced taxable income in order to
utilise the tax losses.

Note 5. Provisions for intercompany balances, page F-20

10.	Please provide the disclosures under paragraphs 84 and 85 of IAS 37 or
tell us why the disclosures are not required.

The provision in note 5 is referring to an entry to recognise a liability for
the fair value of intercompany obligations and the carrying value of
intercompany investments in accordance with IAS 39, as opposed to a provision
as defined by IAS 37. Telecom did not have any significant provisions, as
defined by IAS 37, therefore did not present any of the disclosures required
by IAS 37.

IAS 39 requires financial guarantees to be recognised as fair value. The
parent company has a financial guarantee with a fellow subsidiary that appears
likely to be called upon, therefore had to recognise the fair value of this
guarantee. In certain circumstances the parent company was carrying
investments in subsidiaries whose net asset value had declined during the
year. The provision also relates to the adjustment to the carrying value of
those investments to reflect the underlying net asset position of the
investee.

Note 26. Financial Instruments and Risk Management, page F-41

11.	For your designated fair value hedges, please revise to provide:

•	A description of the hedge,
•	A description of the financial instruments designated as hedging instruments
and their fair values at the balance sheet date,
•	The nature of the risks being hedged,

Similarly, provide the same information for your designated cash flow hedges.
In addition, for cash flow hedges, disclose the periods in which the cash
flows are expected to occur, when they are expected to enter into the
determination of profit or loss, and a description of any forecast transaction
for which hedge accounting had previously been used but which is no longer
expected to occur.


As requested, the following disclosures will be included in future filings.

Fair value hedge
Telecom has converted a portion of its fixed rate foreign dollar debt into a
domestic floating rate exposure using a cross currency interest rate swap.
This relationship has been designated as a fair value hedge of the interest
rate exposure. To the extent that this is an effective hedge the portion of
the debt that has been designated in the hedge relationship is recognised in
the balance sheet at fair value, with changes in the fair value of the debt
recognised in the income statement to offset the change in fair value of the
cross currency interest rate swap.

The fair value of the portion of the debt that was designated in the fair
value relationship was $(131) million as at 30 June 2006. The fair value of
the cross currency interest rate swap was $131 million as at 30 June 2006.

Cash flow hedges
Telecom has converted the remainder of its fixed rate, foreign dollar
denominated debt into fixed rate debt using cross currency interest rate swaps
and interest rate swaps. These swaps are jointly designated as hedges of the
forecast interest and principal cash flows of the debt.

The mark-to-market and maturity of the swaps designated as cash flow hedges as
at 30 June 2006 are:


Maturity	$m
Less than 1 year	2
1 – 2 years	(1)
2 – 3 years	(25)
3 – 4 years	-
4 – 5 years	(7)
Maturity thereafter	(39)
	(70)


The fair value of the cash flow hedges is transferred to the income statement
at the same time as the underlying hedged transaction affects the
determination of income, which occurs upon the scheduled payment of interest
and ultimate maturity of the debt.

Telecom enters into foreign exchange contracts to hedge foreign dollar
purchases. The fair value of the foreign exchange contracts as at 30 June 2006
is $16 million. The purchases are forecast to be made within 12 months of the
balance sheet date.  Deferred gains or losses on hedge contracts will be
included in the income statement at the same time as the underlying purchase
impacts the determination of income.  If the purchase relates to an operating
expenditure item, the hedge gain or loss will be recognised when the
underlying expense is recognised.  If the purchase relates to an item of
property, plant and equipment, the hedge gain or loss will be recognised in
the income statement as the asset depreciates.

Telecom enters into electricity hedges, to hedge the forecast cash flows for
electricity payments. The fair value of the electricity hedges as at 30 June
2006 was $(3) million. The hedges expire in the year ended 30 June 2009.

Telecom does not have any transactions for which hedge accounting had
previously been applied but which are no longer expected to occur.


Note 37. Significant Differences Between New Zealand and United States
Generally Accepted Accounting Principles, page F-53

12.	In future filings, please present US GAAP condensed consolidated statement
of operations by function as required under Rule 5-03 of Regulations S-X.

We shall review Rule 5-03 and ensure that we comply in future filings.


 In connection with responding to your comments, we acknowledge that:

-	the company is responsible for the adequacy and accuracy of the disclosure
in the filings;
-	staff comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the filings;
and
-	the company may not assert staff comments as a defence in any proceeding
initiated by the Commission, or any person under the federal securities laws
of the United States.

We trust that this letter is of assistance in your review of Telecom’s filing.
If you have any questions, please contact me or Peter Garty, Group Financial
Controller, on +64 4 498 9337.


Yours sincerely






Marko Bogoievski
Chief Financial Officer
Telecom Corporation of New Zealand Limited
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
		Telecom Corporation of New Zealand Limited

Date: 13 April 2007	By:	Marko Bogoievski
	Name:	Marko Bogoievski
	Title:	Chief Financial Officer
Telecom Corporation of New Zealand Limited ———————————————————————————————————
(Translation of registrant’s name into English)

New Zealand ———————————————————————————————————
(Jurisdiction of incorporation or organization)

Level 8, North Tower Telecom House 68 Jervois Quay Wellington New Zealand
——————————————————————————————————— (Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: [x] Form 20-F [ ] Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934: [ ] Yes [x] No