i4free hits Telecom with $18m call claim

By CHRIS BARTON

Free internet provider i4free wants $18.16 million in damages from Telecom for alleged anticompetitive behaviour.

The claim, to be filed in the Wellington High Court today under Section 36 of the Commerce Act, is backed by a report detailing the damages by forensic accountants McCallum Petterson.

The case dates back to June 1999 when Telecom announced an internet dialling regime that forced all internet users to use a "0867" prefix or risk incurring a 2c per minute charge.

Annette Presley, chief executive of i4free, which now operates as a paying internet service called Slingshot, said the introduction of "0867" meant the company had to delay the launch of its free service by nine months.

That is reflected in the claim, which estimates revenue over an 18-month period from June 1999 to December 2000 - even though i4free was launched in April 2000.

The claim, lodged by i4free owners CallPlus and Attica Communications, shows i4free would have received $27 million over that period against costs of $8.9 million.

About $23 million of the revenue would have come from a 0.8c per minute "interconnection payment" sharing deal between i4free and its network provider Clear, which in turn was collecting 1.5c per minute from Telecom.

These payments are the fees that telcos exchange with each other for calls ending on their networks.

Normally these cancel each other out, but i4free's service created what's known as a "call sink" - long duration internet calls ending on Clear's network that resulted in a payment imbalance.

In November 1999, to correct this and remove what it termed "perverse incentives" Telecom introduced its 0867 regime. In July 2000 the Commerce Commission began court action against Telecom alleging that it abused its market dominance in introducing the dialling scheme.

The i4free and the Commerce Commission cases are being heard together. Telecom unsuccessfully challenged the Commerce Commission action in both the High Court and the Court of Appeal last year.

"Both challenges have been dismissed, so we're busy putting the case back on track. We're not backing off at all," said commission chairman John Belgrave.

A date for the case has yet to be set. Ms Presley said legal costs of $222,342 had already been run up.

"Somebody has got to do it, somebody has to take a stand. Telecom has been blatantly anticompetitive."

Spokesman Andrew Bristol said Telecom saw no merit in the claim and would "vigorously defend it when it comes to court".