Moody's current ratings on Telecom Corporation of New Zealand Limited and its affiliates are:

Long Term Issuer rating of A3

Long Term Issuer (domestic currency) rating of A3

Senior Unsecured (domestic currency) ratings of A3

Commercial Paper ratings of P-2

TCNZ Finance Ltd.

Subordinate (domestic currency) ratings of Baa1

BACKED Senior Unsecured (domestic and foreign currency) ratings of A3

BACKED Senior Unsecured MTN Program (foreign currency) ratings of (P)A3

BACKED Commercial Paper (foreign currency) ratings of P-2

BACKED Other Short Term (foreign currency) ratings of (P)P-2

RATINGS RATIONALE

The A3 rating reflects Telecom's strong positions in New Zealand's retail and wholesale telecommunications markets despite the loss in vertical integration previously provided through its monopoly fixed line business, "Chorus" - now demerged. In addition the ratings reflect the company's strong financial profile overall with low financial leverage and with support provided though its sound financial policies. The demerger will also now see the company less extensively regulated and we expect this to have a material beneficial impact for the company and its ratings over time due to reduced compliance costs. On the other hand tempering these strengths are a number of credit challenges facing the company, the key one being heightened competition in the retail market and the impact - post demerger - of significantly reduced earnings margins. Other factors for the rating include the growing importance of the information and communications technologies (ICT) business, which does not enjoy the same strong credit characteristics as the telco business.

In addition, TCNZ has also now largely completed its major technology transformation program designed to address the evolving competitive environment. The program which was intended to focus the business on the customer, as well as investment in both wireless and wireline infrastructure to enhance its offering will reduce the capex burden over the next several years (ex any decision to invest in 4G spectrum or infrastructure). Accordingly going forward we expect a relatively steady state spend on capex and this expectation is factored into the A3/P-2 ratings and stable outlook. The company displays a healthy liquidity profile with modest CP use and limited term debt maturities over the next two years, in addition to ample (though MAC-affected) backup facilities, which will help to fund any modest free cash flow shortfall over the next one to two years, though this is not expected to be material.

Despite TCNZ's dominant position in the New Zealand market, its clear commitment to a sound financial profile and the strength of its market position - courtesy of its previous incumbent status - the company has a credit risk profile that remains to-date weaker than the integrated Australian carrier Telstra Corporation Limited (A2/RURPD). Moody's also compares TCNZ to regional peers such as KT Corporation (A3/stable) and SingTel Optus (BCA or `Base Credit Assessment' of single-A before SingTel uplift) - in both these cases TCNZ's key financial metrics have trended relatively weaker , though subsequent to the de-merger we expect to see greater convergence due to TCNZ's now de-leveraged financial profile.

Rating Outlook

The outlook is stable reflecting a degree of flexibility now within TCNZ's ratings to manage the competitive and other challenges in the company's operating environment.

Moody's does not anticipate that upward rating pressure will be a factor for the ratings in the short or medium term and until TCNZ has established a clear track record in its new demerger form.

What Could Change the Rating - Down

On the other hand downward rating pressure could occur should TCNZ experience sustained or intensified competitive pressures or other challenges which lead to earnings disappointment or should the company fail to adequately control its costs and or capex. Decisions to embark upon major debt funded capital initiatives - for example in acquisition of 4G spectrum - would also be likely to place pressure on the company's financial profile.

Indicators that Moody's would look for could include Debt / EBITDA rising to 1.5x, EBITDA Margin falling below 25% on a sustained basis or protracted negative Free Cash Flow.

The principal methodology used in these ratings was the Global Telecommunication Industry Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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Ian Lewis VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 Terry Fanous Managing Director Corporate Finance Group JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 Releasing Office: Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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