Restrictions on the level of foreign ownership of Telecom shares will only apply to its newly split-off infrastructure arm.
Legislation before Parliament would break the telecommunications giant into a retail business, which will keep the Telecom name, and infrastructure company Chorus.
At present, no single shareholder can own more than 10% of Telecom and no foreign national may own more than 49.9% without government approval.
Communications Minister Steven Joyce says that, under the changes, ownership controls will no longer be needed for Telecom.
But he says restrictions will still apply to Chorus as the owner of the copper and fibre networks.