KEY POINTS:
We are "satisfied that Telecom did not have an anti-competitive purpose when it introduced the 0867 service and that there is nothing in the consequences which followed that could lead to a contrary view". What the ... ?
Reading the April 18, High Court judgement of Justice Rodney
Hansen and lay member Michael Copeland in the case of the Commerce Commission versus Telecom, one is left choking in disbelief.
Was the good judge blind or living in another country?
Perhaps the law is indeed an ass. Or maybe, once again, Telecom's deep legal pockets have triumphed over justice.
The 0867 case, our version of Charles Dickens' intractable Jarndyce and Jarndyce dispute in Bleak House, goes back to 2000 when the commission decided to haul the Telecom monopoly before the courts.
At issue was the infamous 0867 dialling regime which the company unilaterally imposed on its competitors in 1999. Its purpose (in the pre-broadband era) was to force all internet users to use an 0867 prefix when they were dialling their internet provider. Telecom said 0867 was necessary to protect its increasingly overloaded network which was being swamped by unruly hordes wanting access to this new internet thingy. In truth, Telecom was bleeding money - thanks to the arcane practice among telcos known as interconnection agreements.
These enable competing networks to connect phone calls from one network to the other and employ border crossing fees (termination payments) to cover the costs. Not surprisingly, Telecom had negotiated its interconnection agreement with competitor Clear Communications at rates very much in its favour.
In 1999 when the trouble started, Clear was paying Telecom at the rate of 3c a minute, amounting to $73 million a year in border crossing fees. In the other direction, Telecom was paying Clear at the rate of 1.5c per minute, amounting to only $18 million a year. But, for Telecom, this was about $12 million a year too much. Far too many people were using Clear's network, staying on the phone far too long while surfing the net and costing Telecom a bundle. There was even a brief period when users could get dial-up internet for free - ironically funded by Telecom's termination payments.
Hence 0867, which we learn from Justice Hansen's judgment was codenamed "Project Morecambe" and cost $2.55 million to implement. The codename is perhaps because of the uncanny resemblance of the architect of 0867, Bruce Parkes, to the late Eric Morecambe of the British comic double act Morecambe and Wise.
Justice Hansen finds one of the reasons for 0867 was so Telecom could avoid capital expenditure of $205 million which would have been required over the next three years to support projected network usage growth.
"The financial base for the business case was said to be entirely cost-avoidance: it would deliver no new revenue but would prevent large spending on Telecom's infrastructure over the succeeding four years." Hmmm, Telecom actively under-investing in its network - why does that have a familiar ring to it?
The judgment takes the bizarre view that Telecom couldn't have used it's dominance to anti-competitively introduce 0867 because it wasn't actually dominant. Justice Hansen points the finger at the Kiwi Share Obligation (KSO), a condition the Government attached to its sale of Telecom in 1990 for $4.25 billion, which guaranteed "free" local calls. Apparently, the KSO constrained "Telecom's prices and, consequently, its levels of profitability in the residential access market". Unbelievable. Somehow our courts have bought Telecom's argument that its monopoly profits since 1990 at the expense of sensible capital investment, not to mention consumer services, weren't enough.
As for kneecapping competitors and depriving them of legitimate revenue through their interconnection agreements, the judgment says no. It argues that because Telecom was eventually able to buy its way out of it predicament - compensating Clear a total of $21.75 million and forgiving it $40 million in earlier termination payments - 0867 was a legitimate response to a difficult situation. By some weird logic, Justice Hansen says a non-dominant firm in the same position as Telecom would have been able to impose the same sort of dialling regime. And pigs would fly.
But what's really tragic about this judgment is that it has taken so long to see the light of day its finding is irrelevant. Justice delayed is justice denied. Had the judgment been timely, it would have shown what we all now know - our laws to safeguard competition in telecommunications are a farce.
