Communications Minister David Cunliffe said the setting up of separate network, wholesale and resale divisions would mean faster and cheaper broadband and phone services for customers.

'Our strategy is to improve market conditions to increase competition, innovation and investment to support New Zealand's transformation to a stronger, more productive knowledge-based economy and society,' Mr Cunliffe said.

The government expressed frustration at the slow improvement in broadband services in New Zealand in 2006, proposing a split in Telecom's operating arms as a way of fostering competition.

Mr Cunliffe announced the split last year - similar to one taken by British Telecom in 2006 - and ordered Telecom to draw up a plan for the separation.

Under the separation, which takes effect immediately, Telecom will have to provide access to its network to competitors at the same price as its own retail arm.

As part of the deal, Telecom has committed to rolling out a fibre optic network to most of New Zealand by 2012, allowing much faster broadband services.

Telecom chief executive Paul Reynolds said the undertakings were challenging but achievable.

'As a consequence of thousands of hours of conversations, we have a clear understanding of both the words and the spirit of the undertakings,' he said.

Telecom has little competition in fixed line phone services but international mobile giant Vodafone is the biggest player in New Zealand's mobile communications duopoly, with just over half the market.

By the close of monday trading, Telecom shares were down nine NZ cents 10 Singapore cents) at NZ$3.74 on the New Zealand Exchange. -- AFP