Legal bid to cut Telecom's net prices

Telecom's rivals have lodged a legal challenge with the Commerce Commission to force the telco to lower its wholesale broadband prices.

And they want tougher penalties if Telecom abuses its market dominance.

The rivals say Telecom set new retail prices for its broadband service Xtra too low and the wholesale price too high, making it impossible for other companies to compete.

Telecommunications lawyer Michael Wigley, who is representing CallPlus, Ihug and Orcon, said: "Telecom is forcing a price-squeeze to push competitors out of the market."

The Commerce Commission would consider the claim, and could seek a High Court injunction requiring Telecom to drop its wholesale prices so internet service providers could compete, said Wigley.

Telecom last week announced Xtra retail prices ranging from $29.95 for 200MB/month of data to $149.95 for 40GB/month.

Competitors say the margin between the unbundled bit stream wholesale price of $28.04 which Telecom charges them and prices they would have to charge their own retail customers to remain competitive with Telecom is too small.

Telecom's head of wholesale, Matt Crockett, said all internet service providers had a range of plans, and it was up to them to construct their line-up and compete with each other.

"That is what we are seeing played out here," he said.

In May, the Government said it would force Telecom to open its network to competitors, giving them the option of buying wholesale broadband from Telecom or installing their own broadband equipment on Telecom's network.

Telecom's competitors also want competition notices to be included in the Telecommunications Amendment Bill, which will open Telecom's network. They say the current legislation is not strong enough to force it to change its monopolistic behaviour.

Such notices - which are used by Australian's competition watchdog - allow courts to impose high penalties on a company if it abuses its monopoly power.

Wigley said the current legislation was weak and would not enable true competition without the provision of a competition notice.

"Telecom's price squeeze of the market at the moment is a terrific example of why we need competition notices," he said.

Competition notices were a "powerful and potent" force to keep monopoly companies in check.

Wigley said Telstra also created an "almost identical" internet price-squeeze in Australia in 2004.

The Australian Competition and Consumer Commission issued a competition notice, and Telstra responded by cutting wholesale rates by a third and giving a rebate of $6.5 million to wholesale customers.

Notices in Australia allow rival parties to seek compensation and the ACCC can seek penalties through the Federal Court of up to $21 million for the first three weeks of the breach and $3 million for each day after.

"The regime has had a marked impact on Telstra's behaviour and has proved to be a most effective mechanism for the ACCC," said Wigley.

"In New Zealand, competition notice will bring everything to a head more quickly and the regulatory threat will be much stronger."

Meanwhile, the Commerce Commission is also undertaking a scheduled three-month review of the $28.04 price that internet provider companies must pay Telecom for DSL connections.


Support for regulation strategy

Telecom declined to share its views on the competition notice regime yesterday, but its Australian subsidiary AAPT has expressed strong support for the notices, which allow courts to impose high penalties on a company which abuses its monopoly power.

AAPT has said the notices increased pressure on operators with substantial market power to cease anti-competitive conduct and provided for more efficient resolution of disputes.

"The competition notice issued to Telstra in 2004 in relation to broadband pricing demonstrates that the investigation of anti-competitive conduct in telecommunications markets continues to be warranted," AAPT said last year in a submission to an Australian Government telecommunications competition regulation review.