Rival mulls legal action against Telecom

Photo / Richard Robinson

The Commerce Commission is set to issue proceedings against Telecom for not giving equal access to rivals on its unbundled copper network.

The phone company's shares sank 1.8 per cent on the news.

The antitrust regulator is pushing to prosecute Telecom over favouring its own retail arm on unbundled bitstream access (UBA) in conjunction with the sub-loop services (SLES), breaching the terms of its government-mandated operational separation.

By selectively providing access to the UBA/SLES services, Telecom had caused serious harm to competition in the market, deferred infrastructure investments by other companies, and resulted in significant commercial gains, the commission said.

Telecom said it would defend any proceedings brought against it. It faces a fine of up to $10 million if a judge agrees it breached the terms, plus damages.

CallPlus chief executive Mark Callander supported the move, describing Telecom's behaviour as "monopolist".

It was likely that CallPlus would also issue proceedings against Telecom, Callander said.

"Telecom announced a significant cabinetisation program in late 2007 which effectively meant that 50 per cent of consumers could not be offered services using our own equipment in exchanges, forcing us to use Telecom's network at a much higher cost."

Consumers were therefore the ultimate losers, Callander said.

"Ironically, this has potentially enabled Telecom to continue increasing the cost of home lines over this period with an annual CPI increases in a market due to a lack of competition.

"This is in a market where pricing should be falling," he added.

The announcement comes after the regulator launched an investigation in UBA/SLES services in October last year.

"Telecom's failure to provide this service has reduced the financial feasibility of unbundling local exchanges, reduced the extent of unbundling, and consequently reduced the extent of retail completion," said Ross Patterson, the Telecommunications Commissioner.

UBA gives telecommunications companies the ability to supply broadband services without needing their own copper network, while SLES is a service provided by Telecom's network company to supply services on the cabinet-based UBA system.

Telecom Group general counsel Tristan Gilbertson said the company did not believe it had breached any non-discrimination obligations.

Telecom had worked with both the commission and the industry to resolve the issue, he said.

Telecom disputed the commission's approach to non-discrimination and its characterisation of the services at issue, Gilbertson said.

"Differences of interpretation aside, we have worked hard since the commission issued its decision on our obligations, and we are continuing to work to build the necessary functionality as quickly as possible."

Telecom was already in the process of providing wholesale customers with UBA/SLES functionality and expected to have a service available shortly.

The announcement comes after Telecommunications Minister Steven Joyce earlier this month scrapped a 10-year regulatory holiday for companies building government's $1.35 billion ultrafast broadband network. Telecom won the lion's share of the contracts, taking 24 of the total 28, including key markets Auckland and Wellington.

The company's shares dropped 4.5 cents to $2.44 after hitting a 16-month high yesterday.

Last year, Telecom agreed to pay $1.7 million to its rivals and the regulator after reaching a settlement of a wholesale loyalty offer that was bound for the High Court.

Had the phone company lost, it faced fines of up to $10 million for each breach.

BusinessDesk / Susie Nordqvist / NZPA