Telecom faces a $12 million penalty from its conviction in the High Court in October 2009, for having been in breach of section 36 of the Commerce Act. It is the highest penalty imposed under the Commerce Act since it was amended in 2001.
A statement from the Commerce Commission says the penalty judgement issued today relates to the so-called ‘data tails’ case. In October 2009 the High Court ruled that from 2001 to 2004 Telecom unlawfully leveraged its market power to charge competitors disproportionately high prices for wholesale access to its network.
The statement quotes Justice Rodney Hansen, who said in the judgement that the exclusionary effects of Telecom’s conduct “were injurious to competitors, brought significant benefits to Telecom and were damaging to the competitive process.” The judge noted that “[t]he breach was the result of a deliberate strategy, apparently sanctioned at the highest levels of Telecom, to price data tails at a level that would preclude price competition between Telecom and other [teleco service providers]”.
Telecom's reaction
Telecom is appealing the High Court’s decision that it breached the Commerce Act and in a statement today says it “will consider today’s penalty judgment carefully in that context.” The appeal is scheduled to be heard in September.
In a statement the company says: “The Commerce Commission alleged a widespread breach of the Commerce Act relating to all high-speed data pricing between 1999 and 2004. However, the Court found that breaches only occurred in the much more limited ‘two data tails’ scenario. Today’s judgment recognises that this “affected only a small proportion of [Telecom’s] data transmission business” – the balance of which pricing the Court held was compliant.
“Telecom continues to believe that the ‘two data tails’ breach was technical and unintentional, and this is the basis of its appeal. While today’s judgment notes that Telecom’s pricing strategy was deliberate, it emphasises that Telecom did not engage in a “flagrant or willful” breach of the Act,
"The Commission’s claim related to pricing that was superseded in late 2004 by regulated data transmission service pricing. Further regulation and, more recently, operational separation have meant that market conditions at the relevant time also no longer exist and have not existed for more than five years,” according to the statement.