Vodafone loses appeal over TSO costs

Vodafone has lost a Court of Appeal case about the way the Commerce Commission works out the costs of providing local residential telephone services to non-commercial customers.

But one of three judges who heard the case dissented, and another said the commission may have to reconsider relatively soon as a matter of law whether its approach still applied.

The case concerns the methods used by the commission in determining the costs of the telecommunications services obligations (TSO), the successor to the Kiwi Share, for the 2003-04 year.

Telecom is able to recover from other telcos a proportionate share of the net cost, as determined by the commission, of providing TSO services to commercially non-viable customers.

Court of Appeal president Justice William Young, who issued a dissenting opinion, said that broadly the commission calculated the relevant cost using a model which treated Telecom's existing core fixed wire network as a given.

It did not model the cost on the basis of the existing mobile sites operated by Telecom and its competitors.

While the commission accepted that mobile telephony could meet the required technical standards, it modelled mobile telephony only as an adjunct to Telecom's existing core fixed wire network, Justice Young said.

Vodafone maintained that the costs should have been calculated on the basis that an efficient service provider would have used existing mobile technology sites except where new ones were needed to meet demand.

Vodafone submitted that by failing to adopt that methodology, the commission had overstated the net cost and therefore overstated the amount that Vodafone and other telcos had to pay to Telecom, Justice Young said.

Up until the 2003-04 determination, the commission had considered that a core network of the kind operated by Telecom was essential to providing the TSO services.

Its conclusion for 2003-04 that mobile telephony was capable of meeting the relevant technical standards introduced a new element.

That factor changed the nature of the debate, Justice Young said.

Once mobile telephony was seen as meeting the required technical standards, the relevant comparison was between two existing infrastructures.

The commission was required to reassess its preferred method for working out costs in light of the changed circumstances, Justice Young said.

The commission erred in law when it rejected Vodafone's methodology because it conflicted with the commission's own preferred methodology. In doing so, the commission treated consistency with its model as the controlling consideration, instead of going back to key statutory provisions, Justice Young said.

He allowed the appeal but said he would leave it to the commission to reconsider the determination.

But both Justice Susan Glazebrook and Justice Terence Arnold dismissed Vodafone's appeal.

Justice Glazebrook said the model adopted by the commission was, at its inception, consistent with the law, and was clearly an appropriate model for the commission to adopt.

But a point may well come where the commission would be obliged as a matter of law to consider whether its approach should still apply.

- NZPA