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Commission Commences Court Action Against Telecom

Media Release

1pm, Thursday 25 March 2004

Commission Commences Court Action Against Telecom
On Pricing Of Access To Data Tails

The Commerce Commission has filed High Court proceedings under the Commerce Act against Telecom Corporation of New Zealand Limited and Telecom New Zealand Limited alleging that Telecom has misused its market power, and continues to do so, to prevent or deter competition in markets involving high speed data transmission. That alleged behaviour includes Telecom setting retail prices lower than wholesale prices for a particular product.

Commission Chair Paula Rebstock said the Commission alleges that Telecom has priced access to its data tail services for high speed data transmission, for the purposes of deterring potential and existing competitors from engaging in competitive conduct. She said this behaviour continues in the market for data tails outside major CBDs.

Ms Rebstock said the Commission investigated Telecom in its enforcement capacity under the Commerce Act and is taking civil action for the courts to decide whether Telecom has breached the Act. She said it has been a complex investigation that the industry has known about for some time.

“The Commission enforces industry specific legislation in the electricity, telecommunications and dairy markets. In addition, all markets in New Zealand are subject to investigation under the Commerce or Fair Trading Acts.”

Ms Rebstock said there was an important difference between regulation and enforcement activity.

“The Commission has two roles, enforcement and regulation. The Commission must act independently when exercising its enforcement role. The Commission’s enforcement role requires the Commission to investigate potential contraventions of the Commerce Act. If the Commission considers there is sufficient evidence of a contravention to warrant prosecution, it must bring proceedings before the court. It is for the court to determine whether a contravention occurred. The Commission is not empowered to make such a finding” said Ms Rebstock.

She added that in its regulatory role the Commission is required to assess whether circumstances exist, such as limited competition, which require a regulatory intervention.

“This can require the Commission to recommend that services provided by a company be controlled or that access to certain services be granted to competitors.

“The enforcement role addresses alleged unlawful use of market power whereas the regulatory role addresses the market conditions that enable the lawful exercise of market power, and whether that market power needs to be constrained through control or access provisions to promote competitive outcomes.”

Ms Rebstock said the decision to prosecute Telecom is unrelated to the Commission’s recommendations on local loop unbundling made to the Minister of Communications, Hon Paul Swain, in December.

“The terms and conditions under which telecommunications companies can obtain access to Telecom data tails are not currently regulated, but are determined by Telecom.”

“In making its LLU recommendation, the Commission concluded that there was limited competition in the data transmission market. At the same time, it was not possible for the Commission to specifically take into account the outcome of the separate data tails investigation under the Commerce Act. That issue of whether Telecom had behaved anti-competitively can only be determined by the courts.”

Ms Rebstock describes enforcement action as the “sharp end” of the Commission’s compliance approach.

“Where we find that the Commerce or Fair Trading Act has been breached in a serious way, we will take action. The role of the Commission is to promote dynamic and responsive markets so that New Zealanders benefit from competitive prices, better quality and greater choice,” said Ms Rebstock.

Ms Rebstock added that as the matter was before the Court, the Commission is unable to provide any further comment at this stage. The Commission is also unable to discuss its LLU Report, which is currently being considered by the Minister of Communications.

If the Court finds that Telecom has breached the Act, it could order Telecom to pay a penalty of up to $10 million or either three times the value of any commercial gain resulting from the breach or if commercial gain is not known, then 10 percent of the turnover of the business.

ENDS

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