Watchdog dials 0867 hearing for Telecom

By CHRIS BARTON

After 14 months of deliberation the Commerce Commission has finally decided to take Telecom to court, alleging abuse of its market dominance with the introduction of an 0867 internet dialling scheme.

Chairman John Belgrave defended the time taken to act saying there were complex legal issues - involving the burden of proof under the anti-competitive provisions (section 36) of the Commerce Act - that took time to investigate.

"We don't take these decisions lightly,"he said. "It's not incumbent on us to move frivolously or without due cause."

If Telecom is found to have breached the act, it could face a penalty of up to $5 million.

Asked why the commission had not sought a negotiated settlement with Telecom, Mr Belgrave said the case warranted court action because of its magnitude and the "fairly involved issues" at stake.

The commission's action appears to have caught Telecom on the back foot.

"Telecom is surprised and disappointed that the commission has seen fit to take such proceedings without consultation," said the company's industry services manager, Greg McAlister.

"We would expect some dialogue before it decided to issue proceedings and we're disappointed the commission has chosen no alternative way to resolve the issue."

Telecom introduced the 0867-prefix dialling regime without consultation to the country's internet providers in June last year - ostensibly to help manage overloading on its network due to a big growth in residential internet calls.

But it later admitted that a second purpose of the scheme was to reduce the "perverse incentives" resulting from an interconnect agreement negotiated between Telecom and Clear in 1996.

Under the agreement, Telecom pays Clear 2c a minute for calls terminating on Clear's network. For calls going in the other direction, Clear pays Telecom 3c a minute.

Telecom contends that the deal was struck in pre-internet times and did not envision the "call sink" effect of long duration internet calls from residential users.

Under the 0867 scheme, Telecom mandated that all residential internet users change to new dial-in numbers using its network and that 0867 prefixes would be outside the scope of the interconnect agreement. This meant no termination payments would be made.

In the process, Clear would miss out on an estimated $25 million worth of interconnect revenue over the 14-month period since the scheme was introduced. By early this year, Clear was the only internet provider to hold out against 0867 dialling.

The situation took a new twist in March with the arrival of free internet providers that began using 0867-redirect services to terminate calls on to Clear's network. That resulted in termination payments again flowing to Clear - which shared a portion of them with the free providers.

In April, Telecom cut off access to free provider i4free. The company took Telecom to court and won an interim injunction to have its access reinstated.

Clear then struck a three-and-a-half-month truce worth $6.75 million.

Clear Communications' chief executive Tim Cullinane said the commission's view that the 0867 scheme was anti-competitive was consistent with Clear's view that the scheme had deprived New Zealand's internet users of choice.

When asked if it would consider joining the commission's action, as it did in the i4free court case, Clear said it was considering its options.

The commission's action was filed in the High Court at Wellington yesterday, and a hearing has been set for September 11.