The Commerce Commission has reached a $31.6 million settlement with Telecom over alleged discrimination under the Telecom Separation Undertakings - or rules of good market behaviour as a near-monopoly - that form part of the Telecommunications Act.

Although a record-breaker, the settlement was less than rivals wanted. In a statement this morning, Telecom tartly noted claims from CallPlus and Kordia (owner of Orcon) totaled $65 million and $74 million respectively.

“It is in everyone’s interests that we settle this regulatory issue prior to demerger,"  Telecom chief executive Paul Reynolds said. The agreemenent ensured "any legal action with the commission that may have arisen from the investigation is not passed to either New Telecom or New Chorus in the event of a demerger."

In May, the commission alleged Telecom's Wholesale division had misbehaved, giving Telecom Retail better terms than competitors like Orcon, Vodafone and TelstraClear, who are supposed to be given equal treatment.

The commission alleged Telecom failed allow competitors provide their own voice services from unbundled Telecom exchanges in conjunction with a Telecom broadband service from a roadside cabinet. Telecom offered the combined service selectively.

Specifically, Telecom had discriminated against other telecommunications companies in breach of the Undertakings by failing to provide them with unbundled bitstream access (UBA) in conjunction with the sub-loop extension service (SLES) when Telecom was providing an equivalent service to its own retail business.

Legal proceedings were subsequently initiated by the commission - but headed off by today's settlement.

Money will go to rivals
“The $31.6 million settlement means that Telecom has returned its commercial gain through the compensation it has agreed to pay to telecommunications companies Vodafone, Orcon, CallPlus, Compass and Airnet," Telecommunications Commissioner Ross Patterson said in a statement.

"This will enable these companies to invest further in local loop unbundling and provide competitive services to consumers. We are pleased that Telecom has worked constructively with the Commission to reach a settlement which has avoided lengthy and expensive litigation, and resolved the matter prior to structural separation coming into effect."

Dr Patterson also noted that Telecom is now rolling out a new Access Seeker Voice service that gives Vodafone, Orcon, CallPlus and other complainants the service access they had been seeking.

Telecom Wholesale was recently rolled into Telecom's Chorus (networking) division, which will be spun off at the end of November, subject to High Court and shareholder approval.

Telecommunicatios Users Association (Tuanz) boss Paul Brislen said the whole episode was a good example of why the Commerce Commission had to retain oversight of Crown Fibre companies.

Tuanz and other organisations successfully fought for the removal of the so-called 10-year regulatory holiday provision from the Telecommunciations Amendment Act that enabled the pending split of Telecom, and the $1.35 billion Ultrafast Broadband (UFB) project.

History of violations
The settlement is easily Telecom's largest ever in a string of Commerce Commission actions. A ComCom spokeswoman told NBR the next largest was the $1.6 million "loyalty offer" settlement. Other recent cases have gone to court, where Telecom's largest fine was the $12 million levied in the so-called data tails case about rivals' access to a wholesale business broad service.

CallPlus, Orcon and Vodafone declined to comment.