Background Information On Telecom Prosecution
Background Information
The Commerce Commission
The Commerce Commission is an independent quasi-judicial body and is not subject to direction in its enforcement and regulatory control activities. It has responsibility for enforcement and regulatory control under a number of general and specific regulatory regimes set out in the: Commerce Act 1986, Fair Trading Act 1986, Electricity Industry Reform Act 1998, Telecommunications Act 2001, Dairy Industry Restructuring Act 2001 and Credit Contracts and Consumer Finance Act 2003.
Commerce Act investigation into alleged
anti-competitive behaviour
Many businesses, for example
banks, operate from multiple sites within New Zealand (and
often overseas) and need to regularly securely transmit
large volumes of data between these sites and/or establish a
permanent private network amongst them. To meet this need,
telecommunications companies offer such businesses a variety
of high-speed data transmission services.
On or about 1
December 1998, Telecom introduced new pricing for its retail
high-speed data transmission services (termed “Streamline”),
and in March 1999 Telecom introduced new wholesale pricing
(termed carrier data pricing (“CDP”)). Through CDP, Telecom
provided and continues to provide other telecommunication
service providers competing with Telecom with two wholesale
data service options:
a) The ability to resell Telecom’s
retail high-speed data transmission services (both dedicated
and switched). Through CDP, Telecom offers other
telecommunications service providers its retail end-to-end
high-speed data transmission services for
re-sale;
b) Access to dedicated data tails in Telecom’s
network in order to supplement the other telecommunications
service providers’ own network and, thereby, provide retail
high-speed data transmission services.
The Commission
alleges that the manner in which the service option in (b)
above is provided, and the way in which it is priced has the
effect that in almost all circumstances the price charged by
Telecom for access data tails required by other
telecommunication service providers to supplement their own
network:
a) Exceeds the price charged by Telecom to the
telecommunication service provider for an “end to end” data
service, when provided for re-sale;
b) Exceeds the
comparable retail price charged by Telecom for provision of
comparable data services;
c) Exceeds the price Telecom
charges itself for access to the data tails;
d) Exceeds
the sum of Telecom’s direct incremental cost and opportunity
cost of supplying access to the data tails.
Since 26 May 2001, section 36 of the Commerce Act prohibits persons who have a substantial degree of market power in a market from taking advantage of that position for various purposes, including preventing or deterring competitive conduct by others. Prior to 26 May 2001, the prohibition under the Commerce Act was use of a dominant position.
The Commission alleges that Telecom was dominant and has a substantial degree of market power. While alternative network infrastructure has been developed in selected areas, Telecom still owns and operates the only nationwide telecommunications network in New Zealand.
Telecommunications Act: Commission’s recommendations on
Local Loop Unbundling
Under section 64 of the
Telecommunications Act 2001, the Commerce Commission is
required to undertake a review into whether access to the
unbundled elements of Telecom’s local loop network and
access to the unbundled elements of, and interconnection
with, Telecom’s fixed Public Data Network should be
regulated. The Commission completed its review and made its
recommendations to the Minister of Communications in
December 2003. The Minister is now considering the
recommendations and is expected to make a decision in May
2004.
The Commission considered issues related to the regulation of data tails in its Review of Unbundling of the Public Data Network, as data tails are part of that network.
In the review, the Commission found that access to data tails was a major ‘bottleneck’ feature of the market for the provision of high quality committed bit rate services to corporates and other large users. Outside of the areas where there was competing network infrastructure, the Commission determined that competition was limited and that there were likely net benefits to unbundling parts of the Public Data Network.
Despite these issues, the Commission did not recommend to the Minister of Communications that access to unbundled elements of Telecom’s fixed Public Data Network (relating to data tails) should be a specified or designated service. The Commission’s decision was influenced by Telecom presenting an Unbundled Partial Private Circuits service offer that has the potential to adequately address the Commission’s current issues concerning access to data tails without regulation. Though the Commission was not satisfied that the offer was suitable in its current form, it decided that opportunity should be allowed for industry negotiations to result in an enhanced service that will promote further competition in that market. Should such an outcome fail to eventuate by June 2004, the Commission considers that it would be appropriate to re-evaluate the merits of regulated unbundling of a data tails or partial private circuits service at a long-run incremental cost price.
ENDS