Telecom falls foul of competition law

Mark Berry. Photo / Mark Mitchell

Telecom faces a multimillion-dollar bill after the High Court found it had used its market dominance to kneecap the competition over a four-year period.

The High Court ruling released yesterday on legal action initiated by the Commerce Commission in 2004 relates to wholesale deals for high-speed data services offered by the company between 2001 and 2004.

These services allow businesses such as banks, to transfer data between multiple sites around the country in a fast and secure way - a market estimated to be worth $120 million a year over the period in question.

The commission claimed the deals on offer breached section 36 of the Commerce Act prohibiting firms from using market dominance for anti-competitive purposes.

Justice Rodney Hansen upheld the commission's complaint that Telecom used its dominant market power to deter competitors in the wholesale and retail market for high-speed data services.

The commission's case focused on Telecom's pricing of "data tails" - the Telecom-owned connection between a customer and the competitor's own network.

Telecom's rivals relied on buying access to these data tails to serve customers in mainly provincial areas where it wasn't cost effective to copy Telecom's network.

The High Court judgment found Telecom's high wholesale prices for data tails shut its rivals out of the associated retail market and deterred them from offering competing wholesale services.

Commerce Commission chairman Mark Berry said the judgment confirmed that dominant firms must offer prices to competitors that enable efficient ones to compete.

"Today's judgment is a timely reminder that the Commerce Act prohibits those with substantial market power from taking advantage of their position for anti-competitive purposes," said Berry.

Telecom has a 20-day period in which to appeal against the conviction which could see it face a penalty of up to $10 million.

In a statement yesterday the telco said it was disappointed with the outcome but had yet to decide whether to lodge an appeal.

"The case stems from the introduction of retail and wholesale pricing of data services, more than 10 years ago, in a regulatory and competitive environment that was very different from today's," said Telecom Group general counsel, Tristan Gilbertson.

"The commission's claim related to pricing that was superseded in late 2004 by regulated data transmission service pricing. Further regulation and, more recently, operational separation have meant that market conditions at the relevant time also no longer exist and have not existed for more than five years."

In August, the Court of Appeal upheld a ruling against the Commerce Commission in its long-running dispute over Telecom's use of the 0867 dial code for ISPs connecting dial-up internet 10 years ago.

DATA DEALINGS
* Historic wholesale deals offered by Telecom between 2001 and 2004 have been ruled anti-competitive.
* Telecom offered wholesale access to its network at prices so as to make rivals' offers uncompetitive.
* The High Court ruled it had breached the Commerce Act by using its market dominance for anti-competitive purposes.
* Penalty not yet set, but could be up to $10 million.