Telecom has admitted it breached the Fair Trading Act after misleading customers about the amount of broadband data being used.

It has reached a settlement with the Commerce Commission over the breach, which came about when inaccurate readings were used for approximately 97,000 customer accounts between November 2010 and June 2011 - caused by a software fault in its meters.

The Commerce Commission today said that 47,000 Telecom customers were affected by the error, which only came to light after complaints.

Since Telecom came to the Commerce Commission and admitted the breach, along with the refunds it is paying out, there will be no penalty imposed.

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Some customers had broadband speeds reduced down to dial-up speeds once their data cap was breached, others upgraded to more expensive plans due to "an incorrect perception about their data usage."

Some were charged overage fees for the amount of data that they used above their data cap and others reduced data usage so as not to exceed monthly data allowances.

Questions were raised about the accuracy of Telecom's data counting on online forums from January this year, but this story in June brought the issue to a head.

Telecom admitted the fault two weeks after that story was published.

So far Telecom has paid out more than $2.7million in refunds, the Commerce Commission said today.

"We're pleased to have reached a settlement with Telecom and that they have made prompt refunds directly back to the customers who have lost out," said Stuart Wallace, Commerce Commission Competition Manager.

"Telecom brought this issue to our attention as soon as they were made aware by their customers and have co-operated fully with the Commission. Due to Telecom's immediate admission of a breach of the Fair Trading Act, followed by appropriate compensation to customers, the settlement is the best possible outcome for those customers and avoids potentially lengthy and costly court hearings paid for by taxpayers," said Wallace in a release published by the Commerce Commission this morning.

Earlier this week, Telecom agreed to pay $31.6 million to five rivals for overcharging for its broadband services.

Telecom put forward a demerger proposal in an attempt to tap $1.35 billion of government funding to build a nationwide broadband network and shed regulatory oversight, which it claimed was overly burdensome.

If investors agree to the deal at next month's annual meeting, Telecom's Chorus network unit become a standalone listed entity, at a benefit of some $500 million to shareholders based on the Crown subsidy, according to independent adviser Grant Samuel's report.

The shares rose 0.2 percent to $2.545 in trading yesterday, and have gained 17 percent this year.

Read details of the Commerce Commission settlement here.

-NZ HERALD ONLINE/BUSINESSDESK