Watchdog forces telco to ditch offers

Telecom will ditch cut-price wholesale offers after a reprimand from the company's watchdog.

Telecom said yesterday it was disappointed at the decision by the Independent Oversight Group (IOG) - effectively an in-house watchdog - that its wholesale business had made "loyalty offers" which breached undertakings agreed with the Government.

The decision said the offers made by Telecom Wholesale sweetening wholesale phone and broadband offers for telcos taking the majority of their business to the company were "non-trivial" breaches of two clauses of the undertakings.

Wholesale head Matt Crockett said the broadband and phone offers were designed to compete for customer business.

"We felt the offers were consistent with, and in the spirit of, the undertakings and competition," he said.

Telecommunications Users Association head Ernie Newman said he felt some sympathy for Telecom's position.

As well as meeting the requirements of the separation agreement, Telecom also needed to ensure a return for its shareholders, said Newman.

The IOG said the reasoning behind the decision - the first by the IOG since it began meeting more than a year ago - would be released within a week. The IOG was established as part of the government-forced operational break-up of Telecom and is charged with ensuring the company meets the terms of the government agreement aimed at bringing a greater level of competition into the telco market.

Complaints were made by Vodafone and Orcon about wholesale deals offering discounts of more than 20 per cent to any telco signing up 90 per cent of their business with Telecom Wholesale. The offers were open to Vodafone and Orcon but only if they discontinued local loop unbundling and adding customers to their own unbundled networks.

The Commerce Commission is separately determining whether the loyalty offers are anti-competitive under the Commerce Act.