Telecom Corp. will be split into three separate operating units by early next year as planned.
The split of the country's biggest fixed line phone company by subscribers into wholesale, retail and networks arms would have to occur by March 31, 2008, Cunliffe said.
Telecom Corp. now has 20 working days to prepare a draft separation plan, he said.
"I have issued my determination ... for a robust three-way operational separation as the next formal step toward finalizing legally enforceable undertakings by Telecom," Cunliffe said in a statement.
Operational separation of the group is a key part of the government's strategy to deliver a more effective and competitive telecommunications sector.
The separation, along with plans to open Telecom's local loop network to rivals from later this year, is designed to foster competition, particularly in high-speed Internet services.
"It will underpin increased competition and efficient investment for the long term benefits of all New Zealanders," Cunliffe said.
Under the split-up Telecom will be required to set up a separately branded networks unit and operate its divisions at arms length. Telecom will also have to establish an independent oversight group to monitor the businesses.
Cunliffe denied a media report that Telecom had struck a deal with the government to sell its fixed-line network business to avoid the three-way split of its business.
Telecom shares closed at NZ$4.30 (US$3.19; 2.26 EUR) Tuesday and rose one cent to NZ$4.31 (US$3020; 2.27 EUR) shortly after the New Zealand stock market opened Wednesday.