Customers will pay Telecom ‘data tails’ fine – Brislen

Yesterday, Telecom was fined $12 million in the so-called ‘data tails’ case.

The High Court found the company guilty of anti-competitive behaviour, under Section 36a of the Commerce Act, for putting a wholesale price squeeze on “end-to-end” high-speed data services (typically used by businesses to send large volumes of data between one office and another).

Telecom Wholesale customers like TelstraClear, Orcon and Ihug (now owned by Vodafone) were charged disproportionately high prices for wholesale access to Telecom’s network between 2001 and 2004, preventing them from offering retail end-to-end high-speed data services on a competitive basis, Justice Rodney Hansen said 

Telecom is appealing the decision. Any appeal is a double-edged sword, however, carrying the risk that a fine could go up, rather than down, or being overturned.

Watchdog asked for $20m - $25m fine
Justice Hansen said he took into account “the goal of specific deterrence” when determining the level of the fine.

The Commerce Commission had asked for a fine of between $20 million and $25 million.

And Business Day tartly noted this morning that Justice Hansen could have levied a penalty of up to 10% of Telecom’s revenue.

In its most recently reported full financial year, to June 30, 2010, Telecom's full-year revenue was $5.27 billion, allowing for a maximum fine of $527 million (if the court takes it from the last year of offending, 2004, revenue was $5.38 billion, allowing for a fine of up to $538 million).

And on OneNews last night, Telecommunications Users Association boss Paul Brislen noted that a $12 million fine was small for a company of Telecom’s scale.

Bigger not better
But this morning the Tuanz boss struck a more nuanced tone:

“Any fine levied against a company is ultimately paid by the customer, so I'm wary of calling for ever greater fines,” Mr Brislen said.

“In this instance it's far too late to make a difference,” he added.

“It should have been heard and decided on back in the early 2000s when it would have made a difference. Thankfully since the new regulatory regime came in to effect in 2006/7 the Commerce Commission has been able to levy fines in a timely fashion and we've seen that happen with the loyalty scheme and possibly with the SLES issue as well.”

Robbing people
A number of Telecom’s opponents, notably TelstraClear, have seen yesterday’s decision as further evidence that Telecom – assuming it wins Crown Fibre business – could not be trusted with the ten year “regulatory holiday” from Commerce Commission scrutiny allowed for under the associated Telecommunications Amendment Act, now going through parliament.

TelstraClear chief executive Allan Freeth further ramped up his rhetoric yesterday, asking

“Why is this government funding companies with Kiwi’s hard-earned cash and refusing to put in place safeguards to prevent them being charged even more? It’s like paying criminals to break into people’s homes and rob them.”

Labour's communications and IT spokeswoman Clare Curran weighed in that "Today’s court decision to penalise Telecom for anti-competitive conduct dating back to 2001 triggers warning bells about entrenching monopolistic practice and is further evidence of Telecom’s game playing and using the system to its own advantage."

Right lessons, wrong lessons
Tuanz takes a more balanced approach.

It does warn that more data tails-style legal grief could be on the way, if the regulatory holiday provision stays in.

“The government must realise that removing the ComCom's oversight role, even if it is only for ‘price and non-price terms’ raises the spectre of this kind of legal action being the only recourse available should the network builder introduce something seen to disadvantage the retail partners,” Mr Brislen said.

However, the Tuanz boss was also wary of drawing a direct line between Telecom’s behaviour in the 2001-2004 data tails affair, and the world of Crown fibre to come, but did see a principle in common.

 “The situation isn't exactly the same - in 2001 we had no price-setting by contract the way we will have with Crown Fibre Holding - but the principle is the same. The ComCom is there to act before any damage is done, not ten years after,” Mr Brislen said.

Overall, Tuanz is strongly opposed to the regulatory holiday concept.