Vodafone explains TSO delay

By PETER GRIFFIN and CHRIS BARTON

A conflict of interest involving its legal advisers was behind Vodafone's delay in lodging an appeal over the Commerce Commission's decision on the Telecommunications Service Obligation (TSO), says the company.

Vodafone disagrees with the way the commission has allocated the amounts it and other competitors pay Telecom to cover Telecom's losses in providing basic phone and internet services nationwide.

The total was $65.7 million on an annual basis, Vodafone stumping up $12.4 million. A previous draft calculation had Vodafone paying $7 million.

The increase came as a shock to the mobile operator, which is challenging the commission's interpretation of "revenue" under the Telecommunications Act.

But it missed a key deadline in challenging the decision.

Vodafone's public policy manager, Roger Ellis, said in an affidavit that its law firm, Bell Gully, announced in the last week of January that it might not be able advise on the TSO "because of a legal conflict with another liable person".

That was a reference to TelstraClear, also represented by Bell Gully.

The law firm had provided advice to both companies for some time and Vodafone's counsel Malcolm Webb had been the key adviser in its submissions to the commission.

TelstraClear did not wish to comment and Malcolm Webb did not return the Herald's call.

However, his last-minute withdrawal clearly caught Vodafone by surprise.

"The loss of continuity of legal representation and the loss of access to Mr Webb and the knowledge he has developed has been significant for Vodafone," Ellis said in his affidavit.

The affidavit also notes that Bell Gully had not advised Vodafone about High Court rules that an appeal must be made within 28 working days of the commission's decision, which contributed to missing the February 6 deadline.

Telecom has filed its opposition to Vodafone's late appeal, but the Commerce Commission has said it would abide by what the court decides.

Telecom chief executive Theresa Gattung said she was surprised by Vodafone's move to appeal.

"It's ironic it's not Telecom using the judicial proceedings to challenge a determination.

"It's Vodafone's policy worldwide to get on with life and steer clear of regulatory issues."

She said the amount concerned was not hugely significant to Telecom, but that the increasing uptake of broadband would eventually make the maintenance of free local calling irrelevant.

Vodafone argues that the lateness of appeal will not prejudice any of the concerned parties and says the matter is "of considerable general importance because it concerns the basis upon which the Commerce Commission should determine levies by liable parties" - not only for the current TSO, but also for any in the future.

Telecom last week wrote to the other parties who contribute to the Kiwi Share - Compass Communications, CallPlus, ihug, Global One Communications, TelstraClear, TeamTalk and WordxChange, outlining its reasons for opposing the Vodafone appeal.

In doing so, Telecom appears to be looking for support among the parties, who collectively saw their Kiwi Share obligations shrink by $7.8 million in the final calculation.

Therefore the companies seem quite happy to stay out of the brewing legal fight.

"I agree with Telecom's argument that what's done is done, although the whole basis of other carriers providing Telecom with cash is ludicrous," said the boss of one telco firm.

The letter from Telecom's lawyers, Chapman Tripp, said Vodafone's "tardy appeal" should be rejected as Vodafone had an in-house legal team and should have known better that there was a window for appeals in place.

It also said that allowing an appeal would reintroduce the "commercial uncertainty" that the TSO decision had finally put to rest.

"There are no reasons for granting the intending appellant an indulgence in the circumstances disclosed by the affidavits," it concluded.

The appeal application will be considered later this month.

What is the TSO?

* TSO - telecommunications service obligation.

* The TSO was created by the Telecommunications Act of 2001, updating the old Kiwi Share Obligation.

* It is a contract between the Crown and Telecom, created when Telecom was privatised in 1990.

* Under the contract, Telecom must provide telephone services, free local calling and low speed internet access throughout New Zealand.

* The 2001 act compensates Telecom for the cost of its duty to service unprofitable customers by levying other telcos.

* The cost is split among the other telcos through a formula relating to their revenue.