Telecom's record $12m fine upheld

UPDATE / Aug 3: The Court of Appeal has upheld a record $12 million penalty imposed against Telecom in April 2011 for breaching the Commerce Act, following an unsuccessful appeal by Telecom.

The court’s decision, released today, follows a judgment dated June 27, 2012, in which the Court of Appeal also ruled against Telecom’s challenges to the court’s substantive findings (see below).

In statement, Telecom said “We are reviewing the decision and considering next steps. This judgment relates to conduct before sector-specific regulation, more than 10 years ago. Following structural separation (last year), the judgment relates to assets and services that now sit within Chorus.”

The Commerce Commission had brought penalty proceedings against Telecom for breaching section 36 of the Commerce Act.

The Court of Appeal found that from February 1999 to late 2004 Telecom unlawfully took advantage of its market power to charge downstream competitors such as Orcon and Vodafone disproportionately high prices for wholesale access to its network.

This prevented competitors from offering retail end-to-end high-speed data transmission services at a competitive price.

In its latest judgment, the Court of Appeal said, having recognised a separate breach over and above what the High Court had found, that “...the penalty is by no means excessive given the extent of the breach we are now dealing with”.

“A significant penalty such as this sends a strong signal to businesses that taking advantage of market power to prevent rivals from competing effectively is a serious breach of the Commerce Act.

"Consumers and rival businesses must have the full protection of the law to enjoy the benefits of competitive markets,” commission chairman Dr Mark Berry said.

Telecom may seek leave to appeal to the Supreme Court against the Court of Appeal’s findings.

Telecom loses appeal in $12m 'data tails' case 

July 2: Telecom has failed in its bid to have the Court of Appeal overturn a record breaking fine in the "data tails" case.

Last year, the telco giant was fined $12 million for breaching s36 of the Commerce Act after it was found to have unlawfully taken advantage of its market position to prevent rivals, such as Vodafone and Orcon, from under-cutting its high-speed internet service.

In 2009, the High Court found that between 2001 and 2004, Telecom charged its competitors disproportionately high prices for its wholesale broadband service.

In the Court of Appeal judgment today, Justice Susan Glazebrook recognised the breach as a significant one.

"It was a 'universal' breach in that it applied to all usable data tails offered by Telecom."

Telecom argued the High Court had erred in finding the company had taken advantage of its dominant position in the market by concluding it had an obligation to supply data tails to competitors.

The Commerce Commission welcomed the findings.

"This ruling is important as it reinforces the fact that it is illegal for a business with a substantial degree of market power to take advantage of that power," commission chairman Dr Mark Berry said.

However, he recognised those same conditions don't exist today.

In December last year, Telecom shed its wholesaler Chorus.

That split paved the way for Chorus to put its hand up to be part of the government's ultra-fast broadband rollout.

Telecom spokesman Mike Burgess says the company was still considering whether or not to appeal.

"This judgment relates to conduct before sector-specific regulation. Following structural separation, the judgment relates to assets and services that now sit within Chorus."