(Rpts, clarifies first par to reflect that under the TSO the penalty could be Telecom receiving less from the Government rather than a fine)

Auckland NZPA Feb 26 - Beleaguered phone company Telecom may face financial penalties which could include cuts to the $50 million a year in government subsidies, after the 111 emergency telephone network failed in south Auckland for several hours today.

Telecom has agreed to pay $15 million in compensation after its flagship XT cellphone network repeatedly failed and today the Government said it was looking at the possibility of a financial penalty over the failure of the 111 network.

About 30 emergency calls failed to get through after Telecom's exchange at Papatoetoe had problems around 3.30am today.

Telecom ordered an inquiry several hours later and Communications and Information Technology Minister Steven Joyce said the Government and emergency services would contribute to it.

Mr Joyce said the Government was also looking at a financial penalty under the Telecommunications Service Obligations (TSO) Deed which gave Telecom a down time on the 111 emergency telephone network of only two hours a year.

"But I would stress that it has yet to be established whether they haven't met the actual agreement made many years ago in terms of the reliability of that service and on what basis, so it is early days to make any suggestion about what might happen there," Mr Joyce said.

"It would be a financial penalty under the deed if there was to be a penalty."

He said the 111 network failure was "disappointing and concerning."

The Government was very interested to know why the system failed to automatically find an alternative switch.

"Particularly concerning about this one (failure) this morning is that my understanding is that these things happen from time to time and there are "fail safe" mechanisms to ensure that the systems switch over and switch around an issue.

"Of particularly interest to ministry officials is why this did not occur on this occasion."

Telecom was warned about how critical the 111 network was during discussions about repeated failures of the XT mobile network, Mr Joyce said.

Under the TSO deed Telecom had an obligation to get a percentage of calls through and meet pre-determined response times.

"You can never guarantee 100 percent but this is a first, we understand, to have an issue like this occur at the Telecom end of the system," Mr Joyce said.

Several hours after the incident police said they were disappointed Telecom took 45 minutes to tell them of the network failure.

The Police Northern Communications Centre learnt of the 111 call problems at 4.15am when a police officer tried to make a 111 call. When he could not get through, he called the communications centre on his radio. About the same time Telecom told police of the fault.

Mr Joyce said the delay in telling police of the network failure would also would be investigated.

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