Like a bad Highlander sequel, the dial-up spat between the Commerce Commission and Telecom seems set to run for all eternity.

The watchdog says a crucial test of monopoly power, as applied in the 10-year-old case, is hindering its ongoing ability to enforce the Section 36 of the Commerce Act.

Key dates
June 18, 1999 - Commission opens its investigation
July 31, 2000 - Proceedings filed
August 20, 2007 - High Court trial
April 18, 2008 - High Court decision
May 23, 2008 - Appeal to Court of Appeal lodged by Commission
March 23, 2009 - Court of Appeal hearing
August 04, 2009 - Court of Appeal decision
September 01, 2009 - ComCom seeks leave for Supreme Court appeal

Back in 1999, when Jenny Shipley was prime minister and nobody had heard of broadband, Clear (now TelstraClear) and a couple of upstart ISPs took canny advantage of interconnection fee structures to offer free dial-up internet.

The likes of Clear offshoot Zfree and i4free (run by the latter-day founders of Callplus/Slingshot, Malcolm Dick and Annette Presley) made a bundle.

An interconnection provision that Telecom had fought for during the voice-only age meant that the longer a dial-up internet session lasted, the more the telco had to pay the free ISP.

By one estimate, Clear pocketed $20 million in six months from the jape.

Telecom soon clamped down on the practice, offering ISPs new interconnection agreements, and their customers new, 0867-prefixed numbers. Or, they could stay on the old agreement, and their customers pay special charges.

The Commerce Commission responded by bringing a case against Telecom under section 36 of the Commerce Act, which aimed at preventing firms with market power from taking advantage of that power to deter competition.

An epic legal battle began.

A full decade later, it seemingly wrapped up on August 4 when the Court of Appeal turned down an application lodged by the commission against a High Court ruling in April 2008. The High Court found that Telecom did not use its dominant position in the market for fixed line retail telephone services to residential customers, or have an anti-competitive purpose when it introduced its 0867 package in 1999.

But last night, the commission announced it was seeking leave to appeal to the Supreme Court (which didn’t even exist in 1999; if you wait long enough, new options will always unfold).

Test of monopoly power
Telecom spokesman Mark Watts said his company is “far from pleased” that the commission wants to go another round.

But the watchdog says an important issue remains unresolved: that is, whether the so-called “counterfactual test” developed by the Privy Council in 1995 should be used as the sole criteria to judge whether a company has abused its market power under Section 36 of the Commerce Act.

The counterfactual test requires a court to ask whether a hypothetical firm not in a dominant position but otherwise in the same circumstances would have acted as the dominant firm did.

The commission complains that the counterfactual test is not the sole criterion for determining similar cases in Australia.

In April 2008, applying the counterfactual test, the High Court found that Telecom had not used its dominant position in the market for fixed line retail telephone services to residential customers, nor had it had an anti-competitive purpose, when it introduced the 0867 package, and so did not contravene section 36. The Court of Appeal last month rejected the Commission’s appeal in this case, again applying the counterfactual test.

“The Commerce Commission is charged with promoting competition. Yet applying the law, developed in 2004 by the Privy Council on a predatory pricing case, to every type of unilateral conduct in the market poses real difficulties. The law as it currently stands is affecting the commission’s ability to fulfil its role in enforcing section 36,” said the Commission’s General Counsel Peter Taylor.