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Hot Topic NBR Focus: GMO
3 mins to read

Telecom pays rivals $1.6 million to settle 'loyalty offer' case

The Commerce Commission has reached a $1.6 million settlement with Telecom over a controversial wholesale offer that discriminated against rivals.Orcon and Vodafone each receive a half share of the $1.6 million. "Telecom's chain has been pulled today

Chris Keall
Fri, 09 Jul 2010

The Commerce Commission has reached a $1.6 million settlement with Telecom over a controversial wholesale offer that discriminated against rivals.

Orcon and Vodafone each receive a half share of the $1.6 million.

"Telecom’s chain has been pulled today and rightly so", Orcon chief executive Scott Bartlett said in a statement soon after the news broke.

But in truth, it's more of a light tug than a pull.

As NBR reported last August, the company faced a potential fine of up to $10 million if the matter reached a court.

Nevertheless, Mr Bartlett is pleased that Telecom has admitted to being in the wrong.

"Orcon has always asserted that Telecom’s claim it was offering volume discounts - but only offering them to ISPs hadn’t invested in competitive infrastructure called unbundling – was utter bunkum," said the ISP boss.

Voluntary withdrawal
Telecom helped avoid a day in court - and potential $500,000 non-compliance penalties - but moving quickly to withdraw the offer after its inhouse compliance watchdog, the OIG, ruled it a breach of the company's separation undertakings (which, in turn, caused inconvenience for CallPlus, and fresh financial pain for Woosh, which raised its retail prices soon after).

The settlement follows a Commission investigation launched after receiving complaints from the telecommunications industry alleging that Telecom Wholesale’s ‘loyalty offers’ breached Telecom’s Separation Undertakings.

An offer CallPlus and Woosh couldn't refuse
The "loyalty" offer saw the likes of CallPlus and Woosh - who did not take advantage of local loop unbundling and move their own DSL gear into Telecom exchanges - charged cheaper wholesale rates that the likes of Orcon and Vodafone, who did.

Telecom offered substantial discounts in return for a commitment for the service providers to maintain current and future customers on Telecom Wholesale’s service rather than that of a competitor.

The Separation Undertakings require Telecom not to discriminate between or against its wholesale customers. The Commerce Commission’s investigation concluded that the loyalty offers were likely to constitute breaches of the Undertakings. 

“In the Commission’s view the loyalty offers were detrimental to investment in telecommunications infrastructure and undermined wholesale competition” said Dr Telecommunications Commissioner Ross Patterson in a statement.

“The $1.6 million settlement means that the complainants Vodafone and Orcon have been compensated, and that further harm to the competitiveness of the market has been prevented. While the issue was serious enough for the Commission to consider issuing proceedings, we are pleased to have worked constructively with Telecom to settle this issue. The settlement avoids potentially lengthy and expensive litigation,” Dr Patterson said.

"Legitimate response"
Telecom group general council Tristan Gilbertson responded in a statement:

“We thought the Loyalty Offers were a legitimate response to competition, but non-discrimination is an undefined and untested concept, so the business had to do its best to navigate through considerable uncertainty. We thought we landed on the right side of the line – but the commission disagreed.”

Mr Gilbertson added: "Telecom accepts that this offer caused concern in the Wholesale Market, risked breaching the Undertakings (specifically, non discrimination obligations) and was likely to have affected competition in the Wholesale Market. Telecom regrets any loss of confidence or impact on investment in the Wholesale Market that may have resulted."

Training for Telecom Wholesale staff is to be "enhanced", Mr Gilbertson said.

Telecom shares (NZX: TEL) were up 0.53% to $1.88 in early trading against a broader market rise of 0.28%.

Chris Keall
Fri, 09 Jul 2010
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Telecom pays rivals $1.6 million to settle 'loyalty offer' case
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