Telecom slapped with big lawsuit

By PETER GRIFFIN

The Commerce Commission yesterday sued Telecom, alleging it misused its dominant market power to prevent competition.

If Telecom loses in the High Court, the giant telco faces a penalty of up to $10 million or having to pay three times the value of any commercial gain made from acting anti-competitively.

The civil action stems from a complaint laid against Telecom by pre-merger Clear Communications and Telstra in 1999 and concerns access to "data tails" - links carrying data traffic between businesses and the central telecoms backbone that routes traffic around the country.

Commission chair Paula Rebstock says she is delivering the "sharp end" of the commission's compliance arsenal because Telecom has priced data tails at a wholesale price that makes it uneconomical for rivals like TelstraClear to sell them in competition to wholesale end-to-end data links from Telecom.

This, says the commission, has been going on for years, is crippling competition in the business data market and is still happening for data links outside of main centres, making it hard for Telecom's rivals to cost-effectively reach the branch offices of major customers.

News of the court action came as a "complete surprise" to Telecom, said the company's general counsel Mark Verbiest. "There hasn't been any formal contact with the commission on this matter in over two years."

Verbiest said Telecom denied the claims, saying Telecom had introduced data services based on more efficient technology in 1998 and discounted the service for competitors.

The lawsuit failed to ruffle the market with Telecom closing up 1c last night. Analysts were more concerned with the public relations fallout at a time when Communications Minister Paul Swain is deciding whether to accept the commission's recommendation not to fully open Telecom's network to competitors.

"The headline that [Telecom] is being taken to court for anti-competitive behaviour is not something they would have wanted at the moment," Macquarie analyst Hamish Anderson wrote. Any legal action could drag on for years. The Commerce Commission and Auckland internet provider CallPlus joined forces in an anti-competitive case concerning Telecom's introduction of the 0867 internet calling regime that is now three years old with no sign of a conclusion in sight.