Telecom fined $12m over 'data tails' case

The High Court at Auckland has fined Telecom a record-breaking $12 million for breaching s36 of the Commerce Act in the so-called "data tails" case.

The penalty is the highest imposed under the act, which was amended in 2001 to increase the fines available for anti-competitive conduct.

In October 2009 the High Court found that from 2001-04 Telecom unlawfully leveraged its market power to charge downstream competitors like TelstraClear, Orcon and Ihug (now owned by Vodafone) disproportionately high prices for wholesale access to its network, preventing them from offering retail end-to-end high-speed data services on a competitive basis.

In the court’s penalty judgment issued today, Justice Rodney Hansen said the exclusionary effects of Telecom’s conduct “were injurious to competitors, brought significant benefits to Telecom and were damaging to the competitive process.”  

He noted that “[t]he breach was the result of a deliberate strategy, apparently sanctioned at the highest levels of Telecom, to price data tails at a level that would preclude price competition between Telecom and other [telecommunications service providers]."

In determining the proper penalty, Justice Hansen said that “[t]he penalty should reflect the size and financial circumstances of Telecom and its position of influence and importance in the telecommunications industry. The goal of specific deterrence requires that the penalty take account of the size and resources of the contravening company.”

Justice Hansen also noted that in this case no allowance could be made for an acknowledgment of wrongdoing or the advantages of a negotiated settlement, and the penalty therefore had to “give full effect to the new penalty regime and the overriding goal of deterrence."

Telecom has appealed the October 2009 judgment and that will be heard in the Court of Appeal in September - and will include consideration of the $12 million fine if the telco decides to appeal that.

Telecom said it would consider today's $12 million penalty judgment "carefully" in context of the October 2009 judgment appeal.

The company said in a statement that it "continues to believe that the 'two data tails' breach was technical and unintentional" and that forms the basis of its appeal.

While today's judgment noted that Telecom's pricing strategy was deliberate, it emphasised that Telecom did not engage in a "flagrant or willful" breach of the act, Telecom said.

The company said the Commerce Commission's claim related to pricing that was superseded in late 2004 by regulated data transmission service pricing.

Further regulation and, more recently, operational separation had meant that market conditions at the relevant time also no longer existed and had not existed for more than five years.

The penalty judgment can be found here.