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Record fine for Telecom welcomed

Wednesday 20th April 2011

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A record fine for anti-competitive practice by Telecom dating back to a decade ago was welcomed by rival TelstraClear but largely ignored by investors.

The High Court fined the telco $12 million for breaching section 36 of the Commerce Act, following a 2009 judgement that Telecom has appealed.

Telecom was found to have charged downstream competitors disproportionately high prices for wholesale access to its network from 2001 to 2004, after the Commerce Commission took the case to court.

The move prevented other providers from offering retail end-to-end, high-speed data services on a competitive basis.

Shares in Telecom closed just a cent lower at $2.055 in a broadly weaker market.

TelstraClear chief executive Allan Freeth said the case highlighted the danger of a planned regulatory holiday for the ultrafast broadband network.

"If the Telecommunications Amendment Bill passes in its current form, fibre companies such as Telecom will get a regulatory holiday until 2020.

"Until that time only part of the Commerce Act will apply to critical issues like the price for monopoly services," Freeth said.

The decision coming 10 years after the offending started showed the need for a referee that the industry and consumers could turn to, he said.

"This is the type of behaviour one expects of a monopoly with market power, and is the type of behaviour TelstraClear and consumer groups are concerned will occur if the Government does not modify the bill now before Select Committee."

Telecom said it was considering today's penalty, and continued to believe the breach was "technical and unintentional".

The commission's claim related to pricing that was superseded in late 2004, and regulation and Telecom's operational separation meant that market conditions relevant at that time no longer existed, the company said.

Telecom's appeal before the Court of Appeal was scheduled to start in September.

Justice Rodney Hansen said the effects of Telecom's conduct were injurious to competitors, brought significant benefits to Telecom and were damaging to the competitive process.

"The breach was the result of a deliberate strategy, apparently sanctioned at the highest levels of Telecom, to price data tails at a level that would preclude price competition between Telecom and other (telecommunications service providers)," Justice Hansen said in the court's penalty judgement issued today.

The penalty should reflect the size and financial circumstances of Telecom, and "give full effect to the new penalty regime and the overriding goal of deterrence", he said.

The act was amended in 2001 to increase the fines available for anti-competitive conduct.



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