Telecom New Zealand under investigation; potential NZD10 million fine mooted for breach

19 Oct 2010

The New Zealand Commerce Commission has confirmed that it has launched an investigation into an alleged breach of the legally binding Separation Undertakings agreed to by market incumbent Telecom New Zealand. The investigation will assess whether the group’s Telecom Wholesale unit has discriminated against New Zealand’s other telecommunications providers, in favour of its retail arm, Telecom Retail. If Telecom is found guilty, the Commerce Commission could ask the High Court to impose penalties of up to NZD10 million (USD7.54 million) for any perceived breach, with additional fines of NZD500,000 per day if the company chooses not to act on its decision. Furthermore, Telecom could be ordered to pay damages to access seekers, risking injunctions that restrain it from unlawful behaviour.

The Commerce Commission’s central concern is the allegation that Telecom Wholesale has been charging telco and ISP access seekers twice for Plain Old Telephone Service (POTS) – once through the copper Sub-Loop Extension Service (SLES) to the exchange, and again through the data Unbundled Bitstream Access (UBA) component, citing a so-called ‘uplift cost’. In contrast, it is alleged that Telecom Retail does not have to pay the UBA uplift cost, which is priced at NZD15 a month. The Commerce Commission’s announcement comes after Telecom’s competitors – Callplus, Kordia, Orcon and Vodafone – wrote to the regulator in January 2010 to lodge official complaints. On 14 October, the Commerce Commission published its own clarification into the provision of UBA in conjunction with SLES, establishing that Telecom is indeed in breach of the regulatory framework.

Mark Watts, Telecom’s head of external media and corporate relations, disputed the allegation that telco has been discriminating against access seekers, whilst confirming that Telecom would participate in the Commerce Commission’s investigation. The Commission will now begin to gather information to assist in its investigation; interested parties will be able to make submissions during the process. The Commission expects to complete the investigation by the end of March 2011 and has stated that it will not be making any further comments at this stage. Industry insiders have speculated that the case will do more damage to Telecom’s already-fragile hopes of participating in the government’s impending Ultra-Fast Broadband (UFB) initiative.

New Zealand, Spark